Thomas Merical

Investor Report: IRS Changes Policy

by Kenneth R. Harney

RealtyTimes

www.MyNvaHomes.com

Commercial and investment property owners who are facing problems refinancing mortgages because of credit market conditions and declining lease revenues may have just gotten some important help from the IRS.

In a policy change outlined last week, the IRS said it is aware that the global capital squeeze is hurting investors who own income real estate and are finding it difficult to stay current on loan payments.

To help ease the burden, the IRS said it would relax current tax guidelines on commercial mortgage bond securitizations to allow more modifications of loan terms.

Commercial real estate, including multifamily apartment projects, has been struggling for the past year.

According to the Mortgage Bankers Association, more building owners are falling behind on payments and seeing property valuations decline as the result of the recession. Between the second and third quarters of this year, the delinquency rate on loans held in commercial mortgage backed securities more than doubled, from 1.9 percent to 3.9 percent.

In its policy change, the IRS noted its tax rules governing commercial property bonds allow for certain levels of loan modifications within loan pools in cases of financial distress and imminent default by borrowers. These modifications include interest rate reductions, extensions of loan terms, and forgiveness of principal debt.

But because IRS's technical rules clamp certain limits on the extent of modifications in a given loan pool, one or more "significant" modifications can terminate the special tax benefits that are crucial ingredients in commercial securitizations.

For certain types of bonds, there is even a 100 percent tax on all net income that is derived from "prohibited transactions."

To permit greater numbers of modifications to occur without triggering prohibited transactions penalties, the IRS said it will lighten up on its rules and not challenge commercial mortgage bonds' tax status in some cases where there is a significant risk of default by borrowers.

Though the IRS's approach is intended to open the door to more modifications for investment property owners in need of relief, mortgage servicing experts were cautious in their initial reactions last week. Jan Sternin, senior vice president of the Mortgage Bankers Association for commercial financing, said that because of the complexity of commercial bond structures, "it will take some time for servicers to determine how much latitude they have to implement the new IRS rules."

Bottom line for income property owners facing loan problems: Get in touch with your mortgage servicer sooner rather than later. Do not assume that a loan modification or refi is out of the question.

In fact, there may be more room for negotiations than ever before.

Published: September 18, 2009

Thomas Merical

Today's Market Conditions: Sept. 17, 2009

09-17-09

Market Conditions

RealtyTimes

www.MyNvaHomes.com

Freddie Mac's reports that increases in sales of new and existing homes over successive months, and favorable reports on home prices during the second quarter reinforces the message that housing markets are stabilizing.

These latest developments signal a shift in the risks to the economy.

A growing threat to the economic outlook now comes not from housing but from the weak labor market, as the housing recovery and consumer spending cannot be sustained without growth of jobs and incomes.

The employment report for August underscored the risks, as the unemployment rate jumped to 9.7 percent, the highest in more than 26 years, and the economy continued to shed jobs for the 20th straight month, with nonfarm payrolls down 216,000.

Nevertheless, the weak labor market does not damp the prospects for a gradual economic recovery over the remainder of this year, followed by a return to trend growth during 2010.

Published: September 15, 2009

Thomas Merical

Federal Hiring Boom Would Benefit DC Area

09-17-09

Federal Hiring Boom Would Benefit D.C. Area

Quicker Rebound Expected With More Jobs, Home Sales and Office Leases

By V. Dion Haynes

Washington Post Staff Writer
Tuesday, September 8, 2009

If projections bear out that the federal government will hire up to 120,000 people for jobs in the region over the next few years, the Washington area economy could be on its way to a rebound faster than most of the nation.

Such a hiring boom would have widespread benefits, economists who study the region's employment and housing patterns said. It could reduce the region's unemployment rate, now at 6.2 percent, if jobless people here are hired, and it could revive stagnant home sales if people outside the area are hired. Moreover, as agencies expand to accommodate more workers, they could opt to lease space, boosting the moribund commercial office market.

Partnership for Public Service, a nonprofit that helps find candidates for federal jobs, released a report last week that listed projected hires for hundreds of agencies between now and 2012. In total, the government is expected to hire 600,000 people, including 19,071 nurses at the Department of Veterans Affairs, 9,800 Border Patrol agents, 3,774 criminal investigators for the Labor Department, 6,282 contract representatives at the Treasury Department, and 3,500 claims assistants and examiners at the Social Security Administration.

The report, called "Where the Jobs Are," focuses on 273,000 "critical needs" positions that are necessary for the operation of the agencies -- 45,000 of which would be located in the Washington area. Federal spending represents 33 percent of the region's economy, and a surge in hiring "is important for the economic foundation of this area," said Max Stier, president and chief executive of the partnership.

The hiring is intended to replace retiring employees and fill positions created as agencies expand to oversee new initiatives, such as economic stimulus programs.

Even before the report was published, some experts were projecting that employment in the region would pick up next year, with net job losses becoming net job gains.

By the end of the year, the area is expected to experience a net loss of 21,000 jobs, said John McClain, senior fellow at the Center for Regional Analysis at George Mason University. But in the next few years, McClain added, the region is expected to see net gains in jobs: 23,900 in 2010; 34,900 in 2011; 42,000 in 2012; 47,600 in 2013; and 53,300 in 2014.

"We will recover somewhat in 2010," McClain said, adding that his forecast does not take into account the dramatic hiring projected by the report. "In 2012 and '13, we're back to our long-term average growth."

"Our metropolitan economy will be first for having positive job growth. We will recover before the rest of the country," he said, adding that he thinks the federal government will hire less than 120,000 because it doesn't have the infrastructure for such mass hiring.

To what extent the hiring boom benefits the region depends on whether a substantial proportion of new jobs would be created and whether many of them would be filled by jobless people in the region, scenarios that would reduce the unemployment rate. Officials at some of the agencies said they are recruiting in the region and around the world. But even an influx of hires relocating here could help by spurring demand for houses and apartments.

Officials at the U.S. Agency for International Development said they plan to hire 1,690 people over the next few years, 550 of whom would work at the Washington headquarters. Most of the overseas and local positions are new, officials said, as the agency is doubling its foreign service staff who work on construction and diplomacy in developing countries.

In addition to the civil service staff in Washington, "one-third of our foreign service workforce is stationed in Washington at any given time" for three years, said Ron Daniels, special projects officer for the agency. Many, he said, would be in the rental market "in short-term or long-term leases."

The Nuclear Regulatory Commission plans to fill more than 459 positions, largely to replace workers expected to retire in the next few years, said Miriam Cohen, deputy director of the agency's human resources department. The bulk of the hires, she said, would be made for jobs at the agency's headquarters in Rockville and a satellite office in Bethesda.

"We need engineers who would be involved in the construction of new reactors," Cohen said.

Analysts said they expect the new jobs to drive demand for housing in the region, accelerating recovery of the market. July housing sales in the region were up 12.6 percent from the same month in 2008, according to the Center for Regional Analysis, and inventory shrank to 6.2 months in July from 11.5 months in January.

"The job growth in D.C. will bring new people into the labor force and drive demand for apartments and houses," said Frank Nothaft, chief economist at Freddie Mac. "That will have a ripple effect in [boosting interest in new houses] and creating construction jobs."

Gregory H. Leisch, chief executive of Delta Associates, a real estate and economic research firm in Alexandria, said several agencies, including the Justice and Treasury departments, have recently signed leases in the commercial office market to accommodate growth. He said he expects that trend to accelerate with the federal hiring, which could reduce the 47 million square feet of vacant space in the region.

The hiring "will translate into 2 to 3 million square feet of office absorption" by the federal government, he said.

Thomas Merical

This Month in Real Estate August 2009

09-05-09

Thomas Merical

Putting Prospecting to Work (For Realtors)

09-05-09

Putting Prospecting to Work by Dirk Zeller RealtyTimes www.MyNvaHomes.com You can work harder, or you can work smarter. Most successful Agents don't go into a secluded room, pick up the phone, and toil away making hundreds of random calls over a non-stop eight-hour period. Few people would even consider that approach. I know I wouldn't, and I doubt you would. Instead, those who win at prospecting begin by targeting who they will call and why. They don't waste their time or effort calling iffy contacts that may or may not even be in the real estate market. Prospecting is only effective if it generates a lead from a truly qualified prospect, someone who is interested in what you offer, needs the service you provide, and has the ability and authority to become a client of your business or to refer you to someone who could. And that's where targeting comes to your rescue. Targeting prospects Let me give you a recent example of the power of targeting. I work with an agent on the east coast. She's an ace when it comes to monitoring her marketplace, and as a result, she wasn't surprised when she saw her market's housing inventory swell significantly over a ninety-day period. For months she'd watched the momentum of the marketplace wane, but over the most recent ninety days, the effect had showed up in the box score. During a coaching call, she said, "It's over." What she was saying was that rapid appreciation and insane marketplace frenzy had come to a rapid end. In the face of the market correction or bubble break, I asked her, "Based on this market change, who should become your new target for prospecting?" After a few minutes of discussion, she aimed her focus on her next prospects: Absentee owners. She correctly determined that, once they became aware of the changing tide, absentee owners were most likely to want to realize their profits before prices dropped further. My client made a decision to call these listing prospects. She would share the market evaluation, inventory, and absorption rates with them. Then she would ask if they wanted to risk all the equity and appreciation they had gained, or if they wanted to sell and lock in their gains. As part of her script, she would ask owners whether, with appreciation flattening or potentially declining, they might find the rental management, headaches, and repair hassles not worth the benefits of continued ownership. Almost immediately, my client launched her new prospecting plan. Within ninety days of our call, she had listed ten absentee-owner properties, with another fifty leads that she expected to list in the next twelve months. Her success was based largely on focused target-based marketing. She went after the right people at the right time and achieved tremendous results. Published: September 4, 2009

Thomas Merical