Metro Denver's commercial real estate market continues to be a bright star among large U.S. cities.  National and international investors have Denver on their radar screen for investment.  Commercial transaction volume is down from the prior year but Denver continues to be a strong market.  Absorption continues to be positive, lease rates steady to up, and vacancy rates for industrial, retail and office remain low.

The subprime meltdown of residential real estate has spilled over into commercial financing.  Even though commercial properties have an extremely low national foreclosure rate, lenders have increased their down payment requirements and tightened underwriting criteria.  Commercial loans are still available to higher quality borrowers.  However, the borrowers who need higher leveraged transactions are finding it difficult to finance the transactions.  Commercial mortgage brokers are working harder than ever to match up borrowers and lenders.

While most Denver area sub-markets are doing well, the Denver-Boulder I-36 corridor is the one attracting most of the attention.  With the announcement of the coming ConocoPhillips move bringing 7,000 jobs to the area, commercial real estate is hot in this sub-market.

See the KW Commercial website at www.ColoradoProCommercial.com .

In this financial climate, investors need to re-think their allocation of assets between cash, stock, bonds and real estate.  We recommend revisiting the 6 advantages of investing in income properties:

Leverage.  Investors receive two benefits from using leverage (OPM-Other People's Money).  First, the investors have a high percentage rate of return on the invested capital.  Second, the investors can grow their real estate investments and wealth to much higher levels with the use of leverage.

Cash Flow.  After the payment of expenses, debt reduction and taxes, investors have cash flow to re-invest in the property, buy the next investment, or distribute to the investor(s).

Appreciation.  Through the use of leverage, inflation, and the laws of supply and demand investors achieve higher returns and growth than stocks, bonds or cash.

Tax Benefits.  When investors dispose of the property they pay a lower capital gains rate than the taxes paid on ordinary income.  Investors can defer taxes through the use of 1031 exchanges.  Along with deductions for all of the property's expenses, the tax laws let investors deduct depreciation from income to reduce their tax bill.

Reduction in Principal.  The income payments that investors receive are used to pay off the investor's mortgage by monthly principal payments, i.e. principal reductions.

Value Creation.  Investment properties will increase in value through property improvements that allow for rent increases, thus increasing the value of the property.

"Don't wait to buy real estate...Buy real estate and wait."  Robert Allen

See our website at www.ColoradoProCommercial.com

Buyers, sellers and investors of real estate are asking us and themselves this week, “What should I do during the financial turmoil we are hearing this week?  Here are a few of our thoughts.

Study the markets, interest rates, financing, economic forecasts, inflation, recession and more.  Read, listen and ask real estate professionals for their opinions about the local market so that you are prepared to make the right decisions. Surround yourself with reliable experts.

Now is NOT the time to be making emotional decisions.  Now is the time to make well-thought out financial decisions.

Our advice is to continue with what you are already doing.  There is not a reason to just freeze.  If you are a buyer or investor searching for a residential or commercial property, you can continue your search. Even if you decide not to purchase at this time, at least you have been learning about the real estate that is on the market so you become the expert when the time is right for you.  In this market, you might find the ideal property that represents an excellent value proposition and that perfectly meets your needs.  If you are able to purchase at a deep discount to market prices, you will limit your downside risk.  You’re not committed to a financial transaction until you sign a contract.

If you are a seller, you can keep the property on the market.  If you take it off of the market you may miss the ideal buyer.  Qualified buyers can still find financing despite what you may be reading or hearing.  Yes, the financing is only available to qualified buyers, but that’s the way it should have been all along. If you are selling you will need to be realistic about the price you are asking.  When pricing your property in a rising market, you want to price ahead of the market.  Pricing in a declining market also requires you to price ahead of the market, only on the downside.  This way you are keeping ahead of the sellers who represent your competition.

Be smart. Be the expert.

Fannie Mae (FNMA) and Freddie Mac (FHLMC) are no longer with us as the federal government has taken them over under the Economic Stability Act.

Lawerence Yun, Chief Economist for the National Assoication of REALTORS (NAR) has made some predictions.  He says, "First of all, it is likely that mortgage rates will trend down over the short run.  But how much of a decline will depend on how actively the government...loosens the mortgage liquidity spigot." 

Replacing Fannie and Freddie is the newly formed Federal Housing Finance Agency (FHFA) who has the authority to purchase mortgages.  "This will help drive down mortgage rates," says Yun. "That is good for the housing market."

Yun expects the lower mortgage rates will slow the level of defaults in housing and lower rates will return buyer demand to the housing markets, thus lowering housing inventory.

Our prediction is that this should start us over the next two years to a return to a more normal and stable housing market.

For more information go the NAR website.

See our website.

Built in 1921 this one-story bungalow represents the style of homes built in Denver in the first 30 years of the 20^th century.  The style is representative of the Craftsman-Style (1890’s-1920’s) and the Bungalow-Style (1905-1930).  The Craftsman-Style in California was inspired by the Arts and Crafts movement led in England in reaction to the mass-production of the Industrial Revolution.  This movement advocated a return to the handcrafted arts and the use of natural materials such as wood, stone and tile.  The bungalows exemplified the traditions of simplicity and quality construction for Denver’s rapidly growing middle class.  Some of the architectural characteristics of the Craftsman Bungalows are:  low-pitched gable roofs, wide-overhangs, wide porches, exposed wood structures, and square, tapered support columns. Denver’s architects of the time adhered to the philosophy of living that looked for a return to the warmth of family and home.

The Senate stepped up to the plate Wednesday night and passed the rescue plan by a 74 to 25 vote. This vote now challenges members of the House who previously voted against a plan and now expected to vote again this Friday on the bailout.

Key features of the plan passed by the Senate are:
· $700 billion to buy up mostly mortgage-related distressed assets from financial institutions, with $250 billion immediately available
· Raise FDIC insurance for banks from $100,000 to $250,000
· Tax breaks and credits for both individuals and businesses including:
   - Renewal of tax breaks for individuals that were about to expire
   - Extension of renewable energy tax credits for businesses and individuals
   - Delay of the Alternative Minimum Tax for another year
· Creation of two financial oversight committees
· Establishment of an insurance program by the U.S. Treasury to guarantee troubled assets
· Pay restraints for CEO’s of institutions selling assets or buying insurance from the Government

In recent days, the world’s economies have been facing volatile financial markets, increasing interest rates, and a severe liquidity crisis. What does that mean to us TODAY? Constraints on real estate loans to home and business owners, capped second mortgages and HELOCS by banks, reduced credit card limits, reduction in loans to businesses for the purchase of inventories and payment of payrolls, fewer student loans and on and on…

Talking to my clients, friends and business associates reveals these events are already impacting their lives this week. This crisis needs to be slowed down and reversed before it becomes more severe. Let’s swallow the bitter pill, create confidence, and start the road to financial recovery.

WASHINGTON, September 29, 2008

The following is a statement by National Association of Realtors® President Richard F. Gaylord:

“The National Association of Realtors® is extremely disappointed in the actions of the U.S. House of Representatives today in failing to pass the Emergency Economic Stability Act of 2008. This legislation is critical to stopping the economic turmoil that millions of Americans are facing. Completing a recovery plan that will end the current economic crisis crippling the housing and financial markets must be accomplished quickly and in a bipartisan manner.

“NAR’s focus is on protecting homeowners and the American taxpayers. Protecting Main Street by keeping people in their homes will not only benefit individual families, but also will help stabilize the housing market, which greatly impacts the overall U.S. economy. Across the country, Realtors® see and feel the loss of confidence experienced by both buyers and sellers in the real estate market and they know firsthand that buyers are finding it harder to get mortgages.

Excuse me. I keep referring to the $700 Billion as a “bailout.” The new politically correct term is “financial rescue plan.” Call it whatever you wish, but the reality is the Washington politicians have killed the chance, at least for today, of passing a bill to address the turmoil on Wall Street.

And what about Main Street as this bloody fiasco unfolds. We have the largest liquidity crisis in modern times.

Banks are not lending money this last week. The jumbo loans are going away for homes. First time buyers are disappointed at the prospect of not moving their family into that new home. Second mortgages are disappearing. Sellers cannot sell properties they need to dispose of, and buyers needing a roof over their heads will have to wait. Interest rates are rising, pricing people out of real estate.

A reality--employers cannot borrow money to make payrolls this week. Employee layoffs, if not occurring today, will actually start tomorrow morning. Small and large businesses cannot borrow to buy inventories to stay alive. Consumers can forget financing that new car. College students are facing the reality of fading college loans. Do you have money in an IRA, 401K or pension plan that is invested in stocks as most of us do? Then 7% of your retirement funds just evaporated in one day with the 777 point drop in the Dow as the House failed to pass a bill.

This is not the end of the world! But it sure feels like it this week. Let’s hold our politicians accountable for this mess, whether we believe this bill should have been passed or not. Where is our leadership? This is America and its people deserve the best.

Sanity will return to our economy at some point. Hold on tight for this roller coaster ride as the “courageous,” partisan politicians continue to blame each other and worry about getting re-elected if they vote the wrong way.

Now...here’s my real estate pitch. Bless those brave investors who are liquid and have cash at this point in time. They are the ones who can buy real estate and financial assets and start us on a turnaround to recovery. They deserve to have the large gains they will make by buying low now and selling higher later.