October 21, 2010
The commercial real estate industry is heading toward what should be a tepid recovery, like the general economy, researchers of a new report said. Also similar to the new economic reality, the industry will most likely settle into a period that distances itself from the super-sizing and excess that defined the mid-2000s boom years that one PricewaterhouseCoopers (PWC) analyst/consultant Jonathan Miller called the "Era of Less."
Miller and Urban Land Institute (ULI) Resident Fellow Steve Blank, presiding over a panel at the 2010 ULI Fall Meeting in Washington, D.C. last week, admitted there were many problems still plaguing the commercial real estate sector, most noticeably high vacancy rates caused by a stunningly small appetite for new commercial space. Though optimism is rising for future prospects, for now demand is "still in the tank," said Blank.
"In this era of less, we don't need anything new," he noted.
However, the duo was happy to note that ULI's annual report on the industry, the 2011 edition of "Emerging Trends in Real Estate," found ratings improving in the apartment, industrial, hotel and retail segments of commercial real estate. Moreover, they believe the worst of the downturn in the industry has passed, and the value of new construction could return to a range between $75 billion and $100 billion by 2012. However, new and renovated spaces will have to adhere to the emerging trend of tenants wanting more flexible and smaller spaces to accommodate factors such as smaller staffs and increased energy efficiency. Moreover, the days of significant operations being conducted in far-off suburbs seem farther from a rebound than those for city-located spaces.
"Companies are doing more to centralize their operations," said Miller. "That's not going to serve the suburban side. [Cities and close suburban] central business districts are way better off than the suburban office right now, and the divide is growing."
The study listed the following as the best markets for opportunity over the short- and medium-term in commercial real estate construction and, even more so, renovation/redesign:
Washington, DC—Because of the vast array of jobs related to the federal government, "Washington doesn't do layoffs."
New York—Commercial real estate in this city has improved more than any other market in the last year, and the federal Troubled Asset Relief Program "helped undergird the financial market."
San Francisco—A progressive city considered to be a "Gateway to the World" location because of its international travel proficiency and varied industries are key drivers that place California on a level equal to the eighth largest economy in the world.
Boston—Simply put, "The academic center of the world."
Seattle—It's another "Gateway to the World" city with a diverse industry base and a large number of skilled and educated young people in the workforce.
Other cities with solid prospects, according to the ULI/PricewaterhouseCoopers report, are Dallas, Denver, Houston, Los Angeles and San Diego.
Brian Shappell, NACM Staff Writer
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Fiscal year 2010 was a big one for the Small Business Administration (SBA) and the Export-Import Bank (Ex-Im). Both agencies recently announced that they had broken financing records in the 12-month period ending September 30, 2010, providing more to businesses hoping to expand through the nation's still struggling recovery.
The SBA Small Business Investment Company (SBIC) debenture program provided a total of $1.59 billion in financing in FY2010, the highest total in the program's 50-year history, marking a 23% increase over the average $1.29 billion in financing offered in the four previous years. The increase was largely credited to changes made under the American Recovery and Reinvestment Act (ARRA) passed in February 2009.
"At a time when access to capital was tight, including from the traditional sources for growth capital, SBA helped fill some of that gap with a record amount of financing through our SBIC program," said SBA Administrator Karen Mills. "Across the country, there are small business owners and entrepreneurs who are well-positioned to take that next step, grow their business and create good-paying jobs."
SBICs are privately-owned and managed investment firms that are licensed and regulated by the SBA. The ARRA eased the rules governing SBIC licenses and decreased license processing times, leading to a boon in the program, which in turn led to more financing. Figures from FY2010 showed that 21 new SBIC licenses were issued, marking a 130% increase over the average 10 licenses per year. Additionally, license processing times fell by 60% from an average of 14.6 months in 2009 to just 5.8 months in 2010.
Ex-Im reported its second consecutive record-breaking year in FY 2010 and, from October 2009 to the end of September 2010, as it authorized a record $24.5 billion in export financing, which supported $34.4 billion worth of exports and 227,000 American jobs at over 3,300 U.S. companies.
"I am proud of the results we have achieved during our second consecutive record-setting year," said Bank Chairman and President Fred Hochberg. "Two of our major priorities are to engage more small businesses and increase our renewable-energy portfolio. And we broke records on both fronts—approving a record $5 billion in financing for small companies and tripling our renewable energy export financing to over $300 million."
Among Ex-Im's other accomplishments was the approval of 3,532 total transactions over the year, which included more than 1,000 companies using Ex-Im financing for the first time. The bank also noted the launch of two new products during FY 2010, including a supply chain financing program geared exclusively toward small businesses.
"While the Bank's 2010 performance is impressive, there remains enormous untapped potential for more American companies to sell more goods and services to more customers in more countries," he said. "And through improved customer service and increased outreach efforts, Ex-Im is committed to helping U.S. companies achieve this goal."
The Ex-Im report was released the same day as the Department of Commerce's export figures, which showed that U.S. exports of goods and services increased by 17.9% during the first eight months of 2010, totaling almost $1.2 billion for the January-August period. August 2010 exports topped out at $153.9 billion, which was the largest monthly figure since August 2008. The largest increases in U.S. goods purchases occurred in Taiwan (50%), Indonesia (46.6%), Korea (46.4%) and Turkey (45.4%). Perennial exporting punching bag China saw a still-notable 35.6% increase in U.S. goods purchases.
Jacob Barron, NACM staff writer
Credit Word's Contest—One Week Left!
If you haven't done so, it's time to submit your anecdotal credit stories for NACM's Credit Words Contest. Earn cash and Roadmap points if you're a winner and Roadmap points if we publish your story. Tell us about the biggest success, proudest moment or most humorous situation experienced during your career. It's not a perfect world either. You can tell us about an unexpected turn in what should've been an easy task, or even a story of failure that will serve to help other credit professionals in the future. The possibilities are endless!
Submission deadline is November 1, 2010. Read the contest rules and get additional details in the September/October issue of Business Credit, or by clicking here.
A pair of bills in the California state government will alter the state's mechanic's lien procedures effective January 1, 2011. And while the changes are mostly red tape, NACM's top mechanic's lien expert warned that anyone doing business in California needs to be familiar with them well in advance of their effective date.
After passing the Assembly and Senate, Gov. Arnold Schwarzenegger has signed two mechanic's lien-related pieces of legislation into law (Assembly Bill 457 and Senate Bill 189). AB 457, now law, requires the plaintiff/lien-holder, after filing a complaint to foreclose on a mechanic's lien, to record in the proper county recorder's office a notice of the pendency of the proceedings on or before 20 days after the filing of the mechanic's lien foreclosure action. Greg Powelson of NACM's Mechanic's Lien and Bond Services (MLBS) notes such liens "are required to be served upon the owner or reputed owner of the property [and] the lien claimant will be required to complete and sign a proof of service affidavit." Failing to do so could result in an unenforceable mechanic's lien, per the new California mandate.
"Hopefully, it will speed up the process of resolution, but if you don't follow it, you can lose your lien rights," said Powelson. "Regardless of who the protection is for, if it can help resolve issues before you end up in foreclosure [or a court room], that's a good thing."
Meanwhile, SB 189 (dubbed the Lowenthal Bill after state Sen. Alan Lowenthal (D)) replaces terms such as "original contractor" with "material man" and "director contractor" with "material supplier," authorizes electronic communication for submission of notices, enacts separate provisions for both private and public works of improvement, expands the class of claimants required to submit affidavits and expands the scope of perjury, among other provisions.
Both California statutes avoid what can be the scariest potential change in the eyes of lien-affected trades: a shortened window for filing mechanic's liens. While most recent state-level changes in time periods have actually made them longer, the prospect is not altogether unlikely in some states, said Powelson.
"Imagine you've worked at 90 days and it's been changed. You could lose your lien rights even though you didn't know about it," said Powelson. "Awareness is the key because these statutes are continually morphing. Make sure you're plugged in to these changes."
More information on MLBS's continually updated Lien Navigator and filing services available to NACM members can be found by clicking here.
Brian Shappell, NACM staff writer
MLBS Offers Complete Lien and Bond Services and More
NACM's Mechanic's Lien and Bond Services (MLBS) brings best-in-class service options to today's construction credit professional.
MLBS' Lien Navigator is a web-based service that provides up-to-date information for all 50 states and Canada, including notice, lien, payment bond and suit timelines, procedures and other relevant information in a state-by-state/province-by-province format.
MLBS also offers two preliminary notice to owner (NTO) services, deadline tracking, a lien and bond filing program, and a suit against bond and foreclosure service. Both NTO services include, at no additional charge, a Next Action Notification Email. These reminders are sent automatically to ensure that your lien and suit deadlines are met during each step of the lien process.
For more information on NACM's MLBS, click here.
As the economy continues its slow sojourn back to prosperity, there remains a wealth of eager sellers in any market. Businesses are scrambling for customers in both the consumer and business arenas, and using every trick up their sleeve to gather sales where they can.
"I think with the economy still rebounding, and business-to-business competition being what it is, the opportunity to work with your buyers now is more important than it's ever been," said Dorothy Morris, CCE, CICP, CAE. "There's no shortage of products in the market, and you don't have a dedicated customer base that can't go somewhere else to get the product. They need someone who's going to work with them."
Morris will present the new NACM "Collect the Debt, Keep the Customer" teleconference on October 25 at 3:00pm EST, where she'll offer listeners the basic tools they'll need to keep their customers, and sign new ones, all while still effectively collecting what they're owed. "It's really about helping the collectors to understand who they are and to be positive and have the ability to present a positive conversation where they're talking to someone regarding collections," she added. "It's about turning something that could be a negative into a positive."
Among the topics on Morris' agenda are collection ethics, measuring the quality of your communications, aligning your interests with the customer's and how to approach upper management about giving certain customers a break. "For example, if it's something that's above your line of authority, knowing who to go to in your company and present your case in a tactful manner," said Morris. "At least you went and said, 'we're working with ABC Co. They've done business with us for 10 years and if we could extend them an extra 10 days or work with the sales department and reduce how much they buy, we could keep them as a customer long term.' That's going to really pay off in the end."
While it's exceedingly important, especially in this economy, to keep viable customers happy to ensure a long-term business relationship, it's a fact that some business failures are unavoidable, and creditors need to know what remedies are available to them in the world of bankruptcy. Another teleconference next week, led by NACM attorney Bruce Nathan, Esq., of Lowenstein Sandler PC, will illuminate what to do when a customer is filing, highlighting the many ways that creditors can enhance their recovery on claims against a debtor, after the business has gone bad.
In a 90-minute Added Advantage presentation titled "Section 503(b)(9), Reclamation and Other Seller Remedies," scheduled for October 27 at 3:00pm EST, Nathan will take listeners on a whirlwind tour of the Bankruptcy Code's many provisions built to protect trade creditors from losing the credit they extended to a debtor in good faith.
Most notably, Nathan will focus on the Section 503(b)(9) 20-day administrative priority claim, which enhances the rights of goods sellers to collect what they sold to a debtor within 20 days of filing, but has been altered by recent litigation. Debtors and secured lenders have made efforts to limit the reach of this remedy, and trade creditors will need to be aware of recent court decisions when asserting their claims. Nathan will also discuss bankruptcy and state law reclamation rights along with Uniform Commercial Code (UCC) stoppage of delivery and adequate assurance rights.
To learn more about Nathan's presentation, or to register, click here.
Jacob Barron, NACM staff writer
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Bank of America appears to be making good on its pledge to make more credit available to U.S. small businesses with a new wave of hirings to serve the industry segment in four cities. However, the ongoing lack of interest in large expenditures and capital projects on the part of such businesses begs the question: Is there actual demand for more loans and more bankers?
Last week, Bank of America unveiled its plan to hire 1,000 small business bankers in four cities: Dallas, Los Angeles, Baltimore and Washington, DC. The hirings would begin by the fourth quarter and extend into next year, said President and Chief Executive Officer Brian Moynihan. The effort plans to target small businesses requesting loans between $250,000 and $3 million.
"Small businesses play a critical role in driving innovation and growth in our economy, and the steps we're taking at Bank of America will help create more certainty, more confidence and more opportunity for small businesses in all of our markets," said Moynihan during his keynote remarks at last week's Chief Executive Officers' Club of Boston event. "Our small business bankers will live and work in the communities they serve, making them uniquely qualified to work with these businesses and provide the best combination of financial services to help them grow."
The move appears to be Bank of America's attempt to fill the gap left by community banks that are enduring massive financial problems because many are holding interests in struggling commercial real estate ventures or are unable to quickly adjust to the wave of new federal regulatory activity aimed at all lenders. Bank of America noted that it provided $45.4 billion in credit to small- and medium-sized companies through the first half of 2010, a significant increase over previous years. Bank of America also pledged to increase its spending with small- and medium-sized and diverse businesses through a commitment to purchase $10 billion in products and services from those suppliers over the next five years.
While the effort may help some small businesses get credit they couldn't obtain from smaller banks with which they had previous relationships and could be profitable for Bank of America, many recent studies have found a lack of demand from small business owners for new credit lines. Most, including the latest Federal Reserve's 12-region Beige Book round-up, noted that a majority of small business owners say they already have access to all of the credit they need at this time, and that plans to make large expenditures are rarely being made for anything but the most necessary and/or overdue projects. Granted, three of the four cities where Bank of America is expanding were included in the Urban Land Institute's study on commercial real estate markets with the most potential over the next couple of years based on the potential for lower vacancy rates (i.e., lower number of unemployed workers and failed businesses) than other U.S. markets (see related story above).
Brian Shappell, NACM staff writer
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Progress toward a single, global accounting standard has come slowly, but steadily. The end has long seemed in sight, but recently the two regulatory bodies responsible for the convergence process have sought comments on dates when these new standards will start to become effective.
The International Accounting Standards Board (IASB) and U.S. Financial Accounting Standards Board (FASB) recently published documents seeking views on when new financial reporting standards should become mandatory. These new standards would primarily be the result of both boards' efforts to merge International Financial Reporting Standards (IFRS) and U.S. generally accepted accounting principles (GAAP).
The issue facing the two agencies isn't so much when exactly these new merged rules should begin to apply, but how they should be made to apply. Some have suggested that all the standards become effective all at once, while others have recommended a standard-by-standard, rule-by-rule approach that spreads compliance out over time.
"The next six to eight months will see a number of new IFRSs being published," said Sir David Tweedie, IASB chairman. "Whilst each of these standards will provide more decision-useful information to investors, we want to know if users and preparers prefer the effective dates to be batched together or sequenced over a period of time."
Typically, when finalizing a new rule, the IASB will identify an effective date for the new rule, typically 12-18 months after its publication. However, in 2011, the boards are expecting to complete work on a number of major projects, including standards governing the reporting of financial instruments, revenue from contracts with customers, insurance contracts and leases. All of these projects are expected to be completed and published in a small time frame, and whether they're all made to apply at once or spread out over the next few years will be determined by the feedback the boards receive.
Comments on how the IASB and FASB should proceed are due by January 31, 2011. To learn more, visit www.ifrs.org.
Jacob Barron, NACM staff writer
The talk of the last couple of months in economic spheres revolved around growing concern that the United States will decline into a double-dip recession in the near future. However, the Federal Reserve's latest study indicates such a scenario has not reared its head in recent weeks and that growth continued, "albeit at a modest pace."
The Fed's Beige Book report, tracking economic conditions in each of the nation's 12 banking districts, found continued, though in some areas sluggish, growth in the economy from September through early/mid-October. Leading the way for the U.S. economy continues to be the manufacturing sector. Seven of the 12 districts reported aggregate gains in production and/or new orders "across a wide range of industries." Three others remained at or near August levels, while only two districts (Richmond and Philadelphia) found easing in the sector. Still, new job openings in the sector remained few and far between as companies try to do, as the cliché goes, more with less. Inventories also are considered "generally light" for most firms to keep costs down during what has been a slow rebound.
The agricultural sector also performed well during the last six weeks or so. The seasonal harvest "was generally ahead of its normal pace, and above-average yields were expected in most reporting districts," according to the Beige Book. One could expect even more optimism from the sector because of an increased need for U.S. exports in struggling ag nations such as Canada and Russia, the latter of which sustained massive damage from uncooperative weather and farmland wildfires in recent months.
Commercial real estate problems continued, especially escalating vacancies and subsequent reduced rental rates in some markets. Still, there have been pockets of optimism on the commercial real estate side with bumps in leasing around the Richmond, Chicago and Dallas areas. Fed contacts in the latter two also reported a rising trend of investor demand for distressed commercial properties, perhaps foreshadowing long-awaited stabilization.
Bank-to-business lending also remained somewhat stymied as demand for loans continued to be low. Postponements of capital spending also continued at most businesses because of economic and political uncertainties.
NACM's popular Beige Book breakdown of the Fed's 12 districts/regions will be available late Thursday at our Credit Real-Time blog.
Brian Shappell, NACM staff writer
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