by mgranizo-ohare on June 7, 2010
Most real estate investors know the importance of purchasing insurance for their commercial property. The common risks they protect against are liability for slip and fall incidents and damage caused by fire or other hazards. However, there are other key factors to consider when shopping for and reviewing insurance policies for your commercial real estate investment.
A. Proper Valuation- Often investors end up paying more on premiums because their policies insure the property up to the resell value rather than replacement value. The replacement value is the cost to repair or replace the property at the time of the loss by using like kind and quality materials. It is not the market value of the property. In determining the replacement value of your property, industry standards are used such as construction class, square footage, year built etc… Be sure to insure your property to its proper replacement value. Insurance companies will never give you more to repair or replace the property than the replacement value at the time of a loss, so it doesn’t make sense to insure to an inflated market value.
B. Flood Insurance- If your property is in New York City, insuring it against flood damage may not be at the forefront of your mind. However, with the numerous water main breaks throughout the City in the past five years, insuring against flood damage is key to protecting your investment. Remember, a flood can be caused by sources other than coastal waters and rivers. Water main breaks are more common than you might think, and the cost to repair or replace damaged floors, walls and carpets, as well as the cost of mold remediation, can be quite expensive. Flood coverage is not [read more...]
by mgranizo-ohare on April 22, 2010
Nowadays everyone is looking to buy bank notes /mortgage loans at significant discounts. They aspire to walk away with control over a prime asset in New York City for 50% to 60% cents on the dollar. However the reality is that in New York City 70% to 80% discount on a bank note IS a significant discount. What might be prevalent in other parts of the country does not reflect the circumstances, benefits and competition of the New York City commercial market.
The Status of Non-Performing Notes Market
New York City
In the course of the next four years, $1.4 trillion dollars in commercial real estate loans are expected to come due. Moreover, contrary to popular perception, it is not the large banks (the Wells Fargo and Banks of Amercia) that are confronted with this looming crisis but the smaller- regional banks-like New York Community Bank. These banks loaned exorbitant amounts of money, inclusive of their reserves, to over-leveraged purchases. Consequently the rates of defaults in these regional banks predictably will continue to skyrocket. As a startingly example, New York Community Bank has 94% of its debt in the commercial real estate market! (Multifamily Investor).
Nationwide
Although the commercial real estate market is improving with prices increasing up to 6%, the rate of defaults continues its upward climb. (Realtor. org) . According to Fitch Ratings (an international ratings agency which provides bond ratings and research on banks ) loan defaults will continue to deteriorate for commercial mortgage-backed securities (CMBS). It projects the default rate to reach 11% from the current 7% by year end 2010. Among the biggest concerns are the default rates in large loans. In 2009, 56 loans in amounts exceeding $50 million dollars defaulted. Additionally, in contrast to the past five years, the retail sector with 32.3% default rate beat out the multifamily sector which experienced a 22.1% default rate. The office sector had a 20.2% default rate and hotel sector suffered a 17.8% default rate. “Fitch predicts the 10-year cumulative default rates on 2007 Fitch-rated CMBS to reach a staggering 27 percent!” (DSnews.com)
The Realities of the Purchase Process
With assurances that the non-performing notes market will continue to expand both in volume and magnitude, an interested investor needs to consider the factors at play in oder to profit from the opportunities this market has to offer.
The Research on the Property Securing the Bank Note
Unlike a traditional property purchase, in a bank note transaction there is no set-up or detailed financials to review while considering an offer. Rather the investor will only receive the address of the property from the bank. [read more...]
