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Commercial Markets

The baseball credo "hit 'em where they ain't" might be the best way to describe some bankers' unlikely advice that now is the time to wade into commercial real estate lending.

Like a batter aiming to hit the ball away from opponents, the contrarians argue, bankers should take note of the crowding field of players in the commercial and industrial market. That trend leaves CRE wide open for those that are able to lend — and willing to challenge conventional wisdom.

"There are only so many seats at the table for C&I lending," said John Tranter, the president and chief executive at Gulfstream Business Bank in Stuart, Fla.

Though 80% of its portfolio is commercial and industrial, Gulfstream is taking a serious look at commercial real estate, simply because it is one of the few Florida banks in a position to do so.

"If you are under the regulatory caps, you should be doing more CRE," Tranter said. "We're certainly looking at it. Your pricing power is going to be phenomenal."

Regulators are keeping a close eye on bank portfolios where commercial property loans make up more than 300% of total risk-based capital, excluding loans where the borrower owns the office or plant it occupies.

There is even more scrutiny of construction and land development loans, where regulators' concerns grow if a portfolio tops 100% of risk-based capital. Some banks are having to purge CRE credits from their books because of various regulatory orders.

Tim O'Brien, a managing partner at Sandler O'Neill & Partners LP, estimated that 20% to 40% of all U.S. banks are at or above those levels, creating opportunities for those who are below them.

"There is still room for CRE loans, including those involving investors" that buy properties, he said. "I am even hearing talk that some are making construction loans again."

Granted, there may not be overwhelming demand for CRE loans right now. Several observers said, however, that banks with the capital strength and willingness to do CRE loans can be selective in choosing their customers and control terms simply because of less competition. C&I, in contrast, is susceptible to competitive pricing and loosened credit standards, some said.

Tranter, whose $573.3 million-asset bank has long specialized in business lending, estimated that banks that shift to C&I from CRE are taking a 40% hit to their prospective earning assets as a result of the move — a harsh reduction in profit potential for banks still trying to recover from the financial crisis.

"The quality of CRE opportunities, rather than the quantity, is going to be robust," said Steven Sandler, the CEO of Crosswind Capital LLC, which buys distressed assets. "There is a slow and steady business."

D. Anthony Plath, a finance professor at the University of North Carolina at Charlotte, said regional and big banks would be the most likely beneficiaries, particularly those that have already left the Troubled Asset Relief Program and have small CRE concentrations. Bank of America Corp. and Citigroup Inc. stand out as possible leaders in CRE lending, he said.

BB&T Corp., despite having roughly a third of its loan book tied to CRE, is another possibility, given its capital strength.

Sandler said foreign banks such as Deutsche Bank AG and Barclays PLC are also in a position to capture CRE business. "The bulk of opportunity will go to larger institutions that have solid platforms and balance sheet strength."

A number of big players are scaling back, providing an entree for others.

Michael Neal, the chairman of GE Capital Services Inc., said last month that the General Electric Co. unit would halve its $80 billion CRE portfolio over time.

"When you talk about what we learned, one is that with small operations at a distance you can't earn very much," he said at a Sanford C. Bernstein conference in New York.

Still, he said commercial real estate market conditions "are largely through the free fall" and that he expects "better days ahead."

Commercial realty has its share of hits and misses when it comes to property types, experts warned. Tranter said it would be unwise to re-enter construction loans, particularly residential development. He said better opportunities await in shopping centers that have strong anchor tenants and, in the longer term, apartment communities.

Sandler said refinancing and loans for acquisitions "are going to be the hot spots" for CRE lending, while "new development is going to be very dormant for a while across all product types."

There are several obstacles that will constrain banks' push into CRE right now, observers said.

Sandler said that the market for commercial mortgage-backed securities, while improved from the lockdown in 2008, is "nowhere near" the volumes seen before things seized up. "There is still uncertainty in the CMBS market on how far losses will go," he said. "That's a block to robust trading, so I would characterize trading now as moderated and constrained."

Another issue is lingering uncertainty about real estate values in certain markets.

Tranter conceded that valuation issues in Florida remain a major consideration as he evaluates borrowers who would be "willing to pay anything" for a 70% loan-to-value loan. Construction and development "pricing is still unclear," he said, "as appraisals continue to come in below expectations."

Plath said that, while CRE deals could be possible in relatively strong markets like North Carolina, he doubted there would be much activity in states such as Florida and California, where valuations have not yet firmed. Banks that are willing to make loans now also have a chance to win over a client who could, over time, move over deposits and take advantage of fee-based services.

"If you have the right piece of property in the right market, it is a lot easier," Plath said. "If so, you can cherry pick a market."

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Try this link for the online Municode Library

Municode Online

Another Link That is Useful is Walmart Realty

Walmart Realty

Electric Cars:

By Steve Hargreaves, Senior writerJuly 15, 2010: 6:24 PM ET

NEW YORK (CNNMoney.com) -- President Obama is once again stumping for stimulus at one of his favorite spots: a plant that makes batteries for electric cars.

These plants have been a high profile piece of the controversial stimulus package, and Obama has visited at least four of them since stimulus was enacted. Dozens of projects dedicated to advanced batteries have received over $2 billion in federal funding as part of the administration's $800 billion-plus plan to revive the economy, create jobs, and push the manufacturing sector into the 21st century.

The plant, owned by the Korean company LGChem, will employ up to 300 people and produce batteries for the Chevy Volt and electric Ford Focus. "So when you buy one of these vehicles, the battery [will] be stamped 'Made in America' -- just like the car," said Obama.

But public scorn over Obama's spending has been running high, and domestic battery manufacturing faces serious challenges. Can it compete with imports from the more experienced Asian companies? And will people actually buy electric cars?

Batteries, made in the USA: In the short term, the industry's challenge is to not overproduce. As these plants come online questions remain over just how fast consumers will adopt the new technology.

But long term, analysts seem to think the U.S. battery business will be viable and that government support at this early stage is a good idea.

"In a world that's becoming more mobile and more electrified, the United States was late to the game," said Xavier Mosquet, a Detroit-based senior partner at the Boston Consulting Group. "A comeback in this industry is critical. Any investment is important."

Mosquet thinks batteries will ultimately be built in the United States, not imported from Asia. The real cost in batteries is the technology and materials - not the labor - which takes away some of the Asian advantage. Plus, they are heavy, making them expensive to ship.

Buying into electric cars: As for consumer demand, he said Boston Consulting research has shown that there's a small percentage of the population that's willing to buy electric cars for the environmental or geopolitical benefits, even if it means paying a bit more. Plus, he expects the cost of the batteries to come down 60% to 75% in the next five years, making these vehicles more attractive to cash strapped Americans.

Ten battery plants are either built or under construction in the country. If they all came online at full capacity in the next year or two, he said there could be an oversupply. But he said the plant's owners know this, and aren't planning on ramping up to full production until the demand is there.

Electric deliveries: Other analysts also said the demand in the consumer sector may be slow to take off, but once fleet vehicles are factored in, there shouldn't be an oversupply problem.

Besides price, one of the biggest concerns keeping consumers from buying an electric car is running out of juice in the middle of nowhere - a mind set in the industry knows as "range anxiety."

But fleet vehicles - think delivery trucks or taxis - are prime contenders for electric power. They tend to either operate the same route everyday or stay in a small geographic area and can be charged or have their batteries swapped out at fixed points.

"It's unclear if consumers will adopt electric vehicles," said Elaine Kwei, a clean tech analysts at the investment bank Jefferies & Co. "But people tend to overlook fleet vehicles. They are a perfect fit."

Jessie Pichel, head of clean tech research at Jefferies, added that the batteries could also be used to store power produced from renewable energy like wind and solar. Using energy from these sources as a major supplier in the electric grid - which requires a steady flow of power - has so far been a challenge, as the wind doesn't blow all the time and the sun doesn't shine at night.

"We believe very strongly that renewable energy can be a big employer," said Pichel. "And there's no reason the U.S. can't be a leader in this."

The skeptics: Not everyone thinks battery manufacturing will find a permanent home in the Untied States.

Asian countries - specifically Japan, South Korea and China - is where other battery powered items like like laptops, mobile phones and power tools are made, said Julius Pretterebner, a vehicles and alternative-fuels expert at IHS Cambridge Energy Research Associates.

As long as that big secondary market remains in Asia, so will car battery manufacturing.

"The future of transport is electric," said Pretterebner. "But unfortunately the products will come from Asia."  

We develop it, build it and then they move the plants overseas. Isn't that the American way.

Cap and Tax

Just a blog question?

Who actually thinks that if a cap and tax is passed that it would have any positive affect on the environment.

This tax if passed will be passed along with all the other proposed taxes to the middle income bracket of America.

Do you think that Congress or the President can talk about about any problem solving issues other than tax this or tax that. What about cutting spending?

Just a thought.