According to Marcus & Millichap, CMBS lending in the 1st half of 2010 reached $2.4 billion. Although still anemic, compare that to $3 billion for the entire 2009 and it looks pretty good. Although Fannie Mae and Freddie Mac were delisted from the NYSE they are expected to remain in operational and benefit apartment owners looking to refinance within their strict guidelines. It looks like they are both hemorrhaging money badly right now and will continue to see losses through 2012 according to Standard & Poor's.

After CMBS's, life insurance companies have been the biggest lenders over the past year. Their commercial mortgage lending increased by 131 percent for the year ending this July. Although they have strict standards, these companies are actively pursuing new business in major markets and increasing the scope of their lending. This is a big shift from last year when most companies were rewriting maturing loans.

Moving into the second quarter of 2010 lending should continue to loosen as multifamily investments continue to outperform many other asset classes and offer a hedge against inflation which is still on everyone's mind.

The job growth graph through May 2010 continues to spike up in a strong V-shape on both sides of the Bay while the San Jose metropolitan area has added net jobs each month for the last six consecutive months starting last December, 2009. Both San Francisco/Peninsula and the East Bay added jobs in May but since some of those are temporary census jobs we may have to wait a couple more months to see if this increase in job growth continues. Meanwhile fixed rates on apartment loans continue to plummet as money flows into the US bond market. With cap rates up, interest rates coming down and the worst of the rental market dip behind us I think it is a good time to wade back into the apartment market.

The title of my last column was "Convergence" which you can read here, and for those of you who attended our recent PCLC Spring 2010 Apartment Market Symposium you will remember I entitled my talk "Convergence", too.  Before introducing our distinguished panel of apartment experts I "set the stage" by letting everyone know the latest good news about the January 2010 jobs data in San Francisco and the East Bay.  That job growth graph, through January 2010, is indeed good news.  It clearly shows a v-shaped recovery in the job growth graph on both sides of the Bay and if you compare it to the historical graph you will see that the last time this happened, in 2003, the rental market was in a stage of recovery with rents going up in late 2004/early 2005.  That means that pretty clearly our rental market is recovering right now and many of us do not even realize it yet because we have vacancies and rents may still be drifting down.  If the job growth graph continues doing what its doing we will see rents going up.  That will not happen this year but maybe next year, and many investors will soon realize that rents will probably be going up in the relatively near future.

At the same time as this rental market is turning, the sale market is, too.  As cap rates rise prices are pushed down.  Investors are beginning to realize that these apartment buildings for sale are not looking too bad as far as returns.  When these same investors realize that the rents wil be going up maybe as soon as sometime next year, the light bulb will go off in their heads.  Bingo.  Convergence.  The two lines will cross, the rental market and the pricing of the sales market will converge and that will be the bottom of our market and the sign to buy.  I called the bottom of the rental market several months ago.  Am I calling the bottom of the sale market?  No, not quite yet but it is getting very close.  In fact, I predict that by the time of our 5th and final symposium of the series in September we will look back and say that sometime between now and then was the bottom.  And loan rates are still very favorable!  Get ready. 

I recently attended an event sponsored by Wells Fargo Bank for its investment clients.  The event was called FOCUS 2010 - Beyond The Great Recession, and there were five speakers, all Wells Fargo vice-presidents in the investments section, and you could tell they were pretty bright guys.  While a lot of the focus was not on real estate, the last speaker, Paul Hornung, Executive Vice President and Senior Credit Officer, is pretty much the head of commercial real estate lending.  In his opinion apartments continue to be the bright spot in commercial real estate, because people have to live somewhere.  The consensus of the group was that even though we are not at the bottom of the real estate market it is "within sight." They are thinking sometime in 2010 we will see the bottom.  Get ready to buy.

Those of you who know Link Corkery, he has been hammering on the risks of Inflation and how history will repeat itself. He has been through 3 or 4 real estate cycles and he is fairly certain that inflation is on the horizon.

The Feb issue of Economist magazine talks about the danger of premature tightening of monetary policy worldwide. Premature tax increases and higher interest rates can have a calamitous effect on economies, as evident in the Japanese 10 year slump the 1937 push into depression.

What is more dangerous inflation or possible slip back into recession? The variegated landscape requires a measured approach depending on the pace of growth. In rich countries with unstable economies it may be too early to start tightening, however emerging economies some of which may be overheating, tightening should start now.

I am quite concerned about the mounting deficit and the effects of printing so much money. With every dollar we print, the value of my hard earned savings goes down. Yet I am not certain there is or was a better approach in the face of the financial disaster. Its clear to me that our administration is not doing enough now to control spending. We are in danger of making the situation much worse for us and our children. Although the economy is still too fragile and credit markets still too dry to begin changing now, I believe our administration must lay out a more credible fiscal plan.

WSJ reported today that housing starts increased 21% from last quarter and December starts were adjusted from a 4% decline to a less than 1% decline. Apartment construction for small buildings rose over 9% and for five or more units construction rose over 17%. These are big numbers for an industry that has been completely flat for some time.

While economists forecast a 5.9% increase in Jan housing starts, the pace was actually stronger than predicted. Starts have gone up three times over the past 6 months. The trend has been, with job loss, tenants double up to save money leaving many apartments in the East Bay vacant. Therefore virtually no new apartment construction has taken place in the East Bay for a couple years.

When the job market finally does pick up and tenants decide to move out and find their own place, the rental market will become exceedingly tight in a short amount of time. This will be compounded as job seekers move from the suburbs back into city centers to stake their claim (a job). It seems obvious to me that builders and developers are foreseeing the inevitable tightening of the rental market in the not too distant future.

We all know in 2008-09 financial turmoil had a devastating effect on sales of apartments, however that sector maintained access to acquisition financing thanks to the presence of Fannie Mae and Freddie Mac. According to National Multi Housing Council, uncertainty regarding near-term future—for rent rolls, absorption, and cap rates— led to a wide gap between bid and ask prices. As a result, transaction volume fell by more than 60 percent last year. Only $38 billion in apartment properties changed hands. Combine this with a U.S. apartment vacancy rate of 7.8% and us owners are hurtin.

I am pleased to announce that Property Counselors Link Corkery, Inc. will host its semi-annual Apartment Symposium on St. Patrick’s Day, March 17. The event will be held at the San Leandro Marina Inn from 6:00 p.m. to 8:30 p.m. This symposium will be a little different than last fall’s event in that I will be moderating a panel discussion on the current state of our apartment market.

I took a client to see this vacant assisted living facility in the Haight in San Francisco yesterday. The property was interesting and presented a number of financial opportunities if financing could be obtained. My first question was would the seller finance the deal, if so this could make sense as small offices or studios with common bath and kitchen.

The building is 15 single occupancy rooms ±4,032 SF, 2-story building. Kitchen and common dining areas. Walking distance to Golden Gate Park and UCSF Hospital. Zoning permits redevelopment with a height limit of 40 ft. or a 4-story building with commercial ground floor and residential above.

We went into contract with our Lower Telegraph property a few weeks ago and we are closely monitoring the seismic work being done. There are huge steel beams going through the building anchoring the facade which faces Telegraph. The new buyer is intending to make a large open beamed condo in the main live work area. We are still pondering the highest and best use for the old Schiff Theater section of this gorgeous historic Oakland brick building.