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Boxwood's research has been cited in recent industry publications below. The articles are posted with the permission of the publishers.

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  • "Commercial Rebounding With Less-Than-$5 Million Sales: Mortgages." Bloomberg News. August 17, 2012.
  • "Small-Cap Properties Saw 3.2 Percent Drop in Value Last Year." Commercial Real Estate Direct Staff Report. March 02, 2012.
  • Commercial properties with relatively small capitalizations saw a 3.2 percent drop in value last year, according to an index by Boxwood Means Inc.

    That contrasts with a relatively flat 0.2 percent increase in an index, by CoStar Group, that tracks all properties. A CoStar index that tracks what it considers investment-grade properties was up 3.4 percent for the year.

    Boxwood Means, a Stamford, Conn., research company that tracks rents, vacancies and sales of properties valued at $5 million or less, blamed the weakness in the small-cap market on the "persistently weak residential housing market and fragile economy." It previously found a close correlation between the small-cap commercial property market, the residential housing market, general economic conditions and unemployment levels. Valuations on large-cap properties, meanwhile, are influenced far more by property-level cash flows as well as real estate and capital market cycles.

    The company tracks values for small-cap properties through two Small-Cap Property Indices, or SCPI (pronounced Skippy.) An index that tracks property values in the country's top-20 markets saw a 5.2 percent year-over-year decline, while an index that tracks the top-80 markets saw a 2.2 percent drop.

    "Despite conventional wisdom, it is the secondary and tertiary markets that have proven more stable over time," Boxwood Means said.

    "Despite conventional wisdom, it is the secondary and tertiary markets that have proven more stable over time," Boxwood Means said.

    Despite the latest year's relatively weak performance, small-cap properties have been solid performers. That jibes with recent findings, by Nomura Securities, that loans against small properties have outperformed, in terms of delinquency, larger-balance loans.

    Boxwood Means noted that small-cap properties in certain markets have woefully underperformed the nation as a whole. It said properties in certain cities it tracks, such as Reno, Nev., Rockford, Ill., and Fort Myers, Fla., saw pricing drops of 15 percent to 40 percent last year. But other markets outperformed. Those include Rochester, N.Y., which saw a 15.1 percent pricing increase, and Dayton, Ohio, with a 9.3 percent gain. It said that a total of 59 of the 80 markets it tracks saw pricing gains last year.

    Looking forward, the company said it registered $3.8 billion of small-cap property sales in last year's fourth quarter, for a 4.7 percent gain from the three months ended November. That would leave 2011 with a total of $46.1 billion of sales, up 25 percent from the year before.

    Copyright © 2012 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

  • "Small-Cap Properties See Sales, Pricing Slowdown." Commercial Real Estate Direct. October 3, 2011.
  • Sales of small-capitalization commercial properties have begun to soften, according to Boxwood Means Inc.

    The Stamford, Conn., research company, which tracks rents, vacancies and sales prices of properties valued at $5 million or less, said $2.8 billion of transactions took place in July. While that's up 6.7 percent from roughly $2.6 billion a year earlier, it is far short of the $3.8 billion monthly average for the past three months.

    What's more, prices for small-cap properties have begun to soften as well, with an index that Boxwood maintains, the Small-Cap Property Indices, or SCPI (pronounced Skippy), falling by 0.8 percent to a value of 86.5 last month. That's the fourth straight month of pricing drops. The index is down 2.6 percent when compared to last year. It was set to 100 in July 2006.

    The softening mirrors the large-cap property market. Real Capital Analytics, which tracks the sale of properties in deals valued at $2.5 million or more, also has seen a sharp slowdown in deals.

    In July, for instance, it recorded $13 billion of transaction activity, an increase of only 13 percent from a year earlier, marking the smallest year-over-year increase in sales volume since December 2009. And it expects investment-sales volume for the third quarter to be up by 20-25 percent from the same period a year ago. That represents a substantial softening when compared to the first half's volume, which was up more than 100 percent from a year earlier.

    Continued economic malaise is to blame, according to Randy Fuchs, co-founder of Boxwood Means. "Investors remain skittish," he said. "The business climate is unclear, so business owners aren't investing in plants and equipment." He noted that more than 50 percent of the properties his company tracks are owner-occupied.

    He noted, however, that the drop in values has not been consistent across all markets. A sub-index that tracks the country's 20 largest markets saw a 1.2 percent increase in values. That mirrors the Case-Shiller housing-value index, which recorded a 0.9 percent value increase in the country's top-10 and -20 markets. But that increase was more than offset by value declines in the remaining 100 markets it covers.

    Boxwood Means, which tracks roughly 3,000 to 5,000 transactions on a monthly basis, previously had found a strong correlation between the performance of the residential housing market and the small-cap commercial property market.

    Meanwhile, property fundamentals are "frail", according to Boxwood Means. The properties it tracks generally have less than 50,000 square feet each. It has updated its rental data to reflect August rents and found that rents at industrial properties fell by 0.22 percent in July to an average of $6.62/sf. Rents at retail properties, which encompass free-standing buildings, street retail and other retail properties, fell by 0.25 percent to an average of $16.54/sf. And office rents were down 0.32 percent to $16.40/sf.

    "The fact is, national rents are still carving out new cyclical lows," the company said.

    Another metric the company tracks, Days on Market, increased in July, showing that prospective tenants are more reluctant to lease space. Retail space, for instance, saw a 5 percent increase in the number of days it was on the market before being leased, to an average of 260 days. And industrial space now languishes on the market for 218 days, up 4 percent during the month, before being leased.

    Boxwood Means cited pessimism among small-business owners for the greater time it takes to lease space. "Business owners' diminished confidence in the economy - and perhaps Washington as well - poses significant near-term hurdles for job growth, the finance sector and small-cap commercial real estate."

    Copyright © 2011 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

  • "Stagnant Unemployment Stalls Small-Cap CRE." MBA NewsLink. August 12, 2011.
  • Economic Obstacles Temper Positive Signs for Small-Balance Loans." MBA NewsLink, March 25, 2011.
  • "Prices for Small-Cap Prices Rose in October by 41 bp." Commercial Real Estate Direct. November 23, 2010.
  • Prices for small-capitalization commercial properties increased for the fourth straight month in October, further supporting the idea that pricing is indeed on the upswing.

    Prices rose by 41 basis points during the month, according to the Small-Cap Price Index, which is compiled by Boxwood Means Inc., a Stamford, Conn., research company that tracks rents, vacancies and sales prices at properties in 120 markets that change hands for less than $5 million. The 90.2 index value for October is up 2.2 percent over the past three months.

    Boxwood Means supplies its small-cap data and analytics via its Web site, SmallBalance.com.

    Two other indices that track properties with generally larger capitalizations had posted pricing increases in September. They have not yet reported results for October.

    While small-cap property values are still down sharply from their 2007 highs, they have been rebounding in recent months. That, according to Randy Fuchs, co-founder of Boxwood Means, is likely because investors are "anticipating that things are stabilizing and will be better." He said that a more vibrant lending market is also likely playing a role in the pricing increases.

    "After substantial write-downs this year, many banks are in a much better position to unload loan assets in the months ahead as market prices approach carrying values," he said, adding that banks hold some $1.5 trillion of commercial real estate debt, most of it backed by small-cap properties.

    Boxwood Means tracks a wide variety of property types, including mixed-use and medical offices in both primary and secondary markets. Its index is not a traditional repeat sale index like those developed by CoStar Group or Real Capital Analytics. Instead, it uses a variety of statistical tools in order to determine pricing for what would be considered generic buildings in specific areas.

    While property pricing has improved nationwide, some pockets of weakness remain. Prices in Las Vegas, for instance, were down 2.3 percent in October; Miami was down 1.1 percent and Phoenix was down 2 percent. But the upward movement in some depressed markets, such as Detroit, which saw pricing improve by 3 percent, could indicate that as pricing has stabilized in major markets, investors are turning their sites to secondary markets and, in some cases, to what had been extremely hard hit areas.

    Property pricing, Fuchs noted, is very reliant on broad economic conditions. While property fundamentals are still weak, the thinking is that economic conditions ought to improve. "The investment sales market is anticipating improvement," he said. "Investors are buying low."

    Copyright © 2009 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

  • "Larger CRE Property Prices Fall Harder than Small, Report Says." MBA NewsLink. September 9, 2010.
  • "Small-Cap Property Prices Fall by 24.7% from Peak; Outperform Large Caps." Commercial Real Estate Direct. September 7, 2010.
  • "Small-Cap CRE Markets Improve Despite Uncertain Economy." MBA NewsLink. August 18, 2010.
  • "Commercial Property Market Perks At Top." Investor's Business Daily/Yahoo. August 5, 2010.
  • "Rent Cuts Persist for Small Cap Real Estate, but Report Sees Improvement." MBA NewsLink. July 19, 2010.
  • "Momentum Builds for Small Cap Recovery." MBA NewsLink. May 17, 2010.
  • "Small Businesses Buy Vs. Lease, Drawn By Low Property Values." Investor's Business Daily. April 8, 2010
  • "National Small-Cap Properties Require Granular Readings". MBA NewsLink. March 22, 2010.
  • "Fundamentals for Small-Cap Properties Kept Weakening in March." Commercial Real Esate Direct. February 23, 2010.
  • Fundamentals for small-capitalization properties have continued to deteriorate, according to Boxwood Means Inc., with key metrics such as rents and tenant demand weakening last month.

    National rents were down across the board in January when compared to a year ago. The declines range from 3.34 percent to $18.94/sf for medical-office buildings, to 8.23 percent to $7.17/sf for industrial properties. Office properties in general saw a 4.04 percent decline in rents to $17.57/sf, while retail properties have seen a 6.31 percent drop to $17.55/sf.

    When compared to a month earlier, rent declines ranged from 0.2 percent for medical offices to 0.74 percent for industrial.

    Boxwood Means is a Stamford, Conn., research firm that focuses on small-cap properties, which it defines as those with less than 50,000 square feet. It compiles property-level operating and sales data through a partnership with LoopNet Inc.

    It also compiles Days on Market, a calculation of how long it takes to rent vacant space that it uses as a gauge for tenant demand. It said the metric is at its highest level in nine months, meaning space is languishing on the market.

    Despite the bad news in the data, Boxwood Means noted that declines in rents and demand are no longer as steep as they were in previous months. But it cautioned that fundamentals would continue to weaken until the national jobs picture improved and consumer confidence rose. Today, the Conference Board reported that consumer confidence had fallen sharply this month.

    Boxwood Means noted that even though consumer spending has increased steadily over the past few months, that hasn't been enough to make an impact on retail properties, which have witnessed a continued decline in rents and demand for space.

    For instance, shopping center space was on the market for an average of 216 days before being leased.

    Meanwhile, overall rents for retail properties fell by 0.48 percent since December, to $17.66/sf. Rents for street-front retail space fell by 0.52 percent to $17.56/sf; for space in free-standing buildings, it fell by 0.53 percent to $15.71/sf, and for other retail buildings, it fell by 0.49 percent to $17.11/sf. Rents for space in shopping centers fell by 0.51 percent in the month, to $17.69/sf, and for space in strip centers, it fell by 0.50 percent to $16.68/sf.

    Demand for space in the office and industrial sectors remained stable in January, with office space sitting on the market for 182 days before being leased and industrial 175 days.

    Copyright © 2009 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

  • "SBA Initiatives May Support 'Worrisome' Small-Cap CRE Market." MBA NewsLink. February 18, 2010.
  • "Small-Cap Days on Market Reach New Highs." MortgageOrb.com. February 15, 2010.
  • "Shopping Centers Recovering Slowly." MortgageOrb.com. January 14, 2010.
  • "Small Cap Rent Declines Follow Residential Pattern." MBA NewsLink. December 21, 2009.
  • "Boxwood Means Launches Portal for Small-Cap Property Research." Commercial Real Estate Direct. December 17, 2009.
  • Boxwood Means Inc. has launched a subscription-based Web site, www.smallbalance.com, that provides users instant access to its broad array of data and analysis on small-capitalization commercial real estate in the United States.

    The Stamford, Conn., research firm, which was founded some six years ago by Randy Fuchs and Michaell Taylor, is using the site to distribute two newly launched research products - Valpro, a valuation model for small-cap properties, and Mercury Reports, which provide property sales and rental data and analysis. Both are available for properties in markets across the country. Unlike most other property data and analysis providers, Boxwood Means updates its information monthly and reports it on a rolling three-month basis. Fuchs explained that doing so provides a clearer snapshot of market changes.

    The company has found that the performance of small-cap commercial properties - those with less than 50,000 square feet each - correlate more closely with the residential market as opposed to the broader commercial real estate market. That stands to reason since owners and tenants at small properties are generally relying on their personal credit ratings to buy or lease. As a result, lenders and investors with exposure to small-cap properties might be shortchanged if they relied on broader market research.

    "Drawing on mainstream market data to assess the small commercial property market is like using the Dow Jones Industrial Average to benchmark the performance of a small-cap mutual fund," Fuchs said.

    Boxwood Means estimates that some 16 million properties are considered small-cap. Loans against those properties dominate the balance sheets of regional and community banks.

    Copyright © 2009 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

  • "Small-Cap Properties See Continued Rent Drops, But Less Than Before." Commercial Real Estate Direct. August 7, 2009.
  • Rents at small-capitalization properties continued to fall last month, but the rate of decline has tapered off somewhat, which might indicate that the worst could be over for the sector.

    According to Boxwood Means Inc., a Stamford, Conn., research company that focuses on small-cap properties, all sectors continued to see rental drops, with industrial and certain retail buildings seeing the biggest drops. But those declines are nowhere near as large as they had been during the market's freefall during the middle of last year, when monthly drops in some subsectors were greater than 100 basis points.

    Another reason for optimism: Boxwood has found a strong correlation between the performance of the residential housing market and small-cap commercial properties. And the residential market has seen an uptick in sales and potential stabilization of pricing, which could portend a period of stabilization for many small-cap properties, particularly retail.

    In addition, small-cap properties, which it defines as those with less than 50,000 square feet each, tend to be far more responsive to market conditions than large-cap properties because of the relative short duration of their leases. And most are owned by local operators who can quickly react to local economic conditions with rent concessions, reductions or increases.

    Boxwood compiles property-level operating and sales data through a partnership with LoopNet Inc.

    It is less optimistic when it comes to industrial property rents, which it believes will continue to see rental declines - in some cases steep ones - because of the sharp downturn in manufacturing and weak demand for warehouse space.

    Rents for industrial properties overall were down 73 bp in July to $7.52/sf. They're now down 6.44 percent from a year ago.

    Boxwood gathers data on five distinct retail property types: street retail, free standing buildings, shopping centers, strip centers and other retail, which would include small strip centers.

    Overall retail rents were $18.24 in July. That's down 60 bp from June and 5.82 percent from a year ago. Free-standing buildings have been most hard hit, seeing a 60 bp decline in rents in June and 7.3 percent decline from a year ago to $16.28/sf.

    Shopping centers, meanwhile, saw a 49-bp decline in rents in July to $18.20. That's down 5.44 percent from a year ago.

    As in previous surveys, Boxwood found sharp differences in the rate of rent declines among the various regions it tracks, with retail properties in the Northeast substantially outperforming, in terms of rent declines, those in other regions.

    Small office properties, meanwhile, which generally do not rely on financial services firms, have so far seen the smallest rental drops. In July, they were down only 31 basis points to $18.03/sf. That's down only 2.49 percent from a year ago.

    Copyright © 2009 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

  • "Decline slows in 'small' market." Stamford Advocate. June 30, 2009.
  • "Rents at Small-Cap Properties Continue Falling." Commercial Real Estate Direct. June 16, 2009.
  • Rents at small industrial and office properties continued to fall last month, according to Boxwood Means Inc.

    But the rate of decline has not increased, according to the Stamford, Conn., research company that specializes in small-capitalization properties. And that could signal that the market might be close to reaching its cyclical bottom.

    Rents at office properties with less than 50,000 square feet, for instance, fell by 27 basis points in May to $18.21/sf, while at industrial properties, they fell 61 bp to $7.63/sf. Those rates of decline are similar to the drops in previous months. On a relative basis, that's good news.

    Nonetheless, rents have fallen at industrial properties for 18 months straight and at office properties for 12 months. Small office properties generally do not rely on the financial or professional services sectors for tenants.

    Larger-cap properties, meanwhile, have suffered greater declines in rent. According to Reis Inc., national office rents fell by 4.1 percent in the first quarter, to $24.08/sf, from their peak in the second quarter of 2008. During the same period, rents at small-cap companies fell by only 1.67 percent, to $18.31/sf.

    Boxwood Means compiles property-level operating and sales data on small-cap properties through a partnership with LoopNet Inc. It has found a strong correlation between the performance of the residential housing market and small-cap commercial properties and noted that the residential market has been showing signs of stabilization of late. The same could be said of the small-cap commercial market.

    House prices had hit their nadir months earlier and have since bounced slightly. Small-cap commercial properties "might also be finding a market floor," Boxwood Means said, noting that such properties are "highly dependent" on neighborhood-based businesses and residential communities.

    But the company found a wide disparity among geographic regions, with the Southeast being especially hard hit and the Northeast relatively unscathed. Those trends mirror the residential housing market.

    The small-cap property sector isn't immune to the ongoing capital-markets squeeze. But most properties have managed to avoid potential foreclosure as a result of maturity defaults because they mostly rely on financing from small and regional banks.

    "Financing availability has been a differentiator that has propped up the small-cap sector," Boxwood Means said. The lack of financing, prompted by the shutdown of the CMBS market and a substantial pullback by other traditional lenders, such as life insurers, has put the larger-cap market into a tizzy.

    Comments? Call Orest Mandzy at (215) 504-2860, Ext. 211.

    Copyright © 2009 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

  • "Small Retail Property Rent Drops Steeper than Larger Property Declines." Commercial Real Estate Direct. April 14, 2009.
  • Asking rents at small retail properties fell a whopping 3.4 percent in the first quarter to a national average of $17.85/sf, according to Boxwood Means Inc. Rents are now down 9.3 percent from a year ago.

    The first-quarter decline is the greatest since at least 2006 and a clear indication that properties with less than 50,000 square feet are struggling much more than larger retail facilities, according to the Stamford, Conn., research firm. The properties covered, which range from strip centers to stand-alone shops, are each under 50,000 sf and average 13,500 sf.

    Shopping malls, meanwhile, saw a 1.2 percent decline, to $39.99/sf, in their first-quarter asking rents, according to Reis Inc., while shopping centers saw a 60 basis point drop to $19.04/sf.

    While the performance of larger shopping centers and malls has been hurt by downsizing among national retail tenants, smaller retail properties typically lease to local retailers. Those tenants are less well-capitalized and even more likely to scale back or close during economic downturns, said Randy Fuchs, principal of Boxwood.

    Owners of small properties are also less well-capitalized than their larger property counterparts. The retail properties covered by the Boxwood research typically trade hands for less than $10 million.

    Within the small retail-property sector, street properties - often tenanted by the sellers of higher-priced, specialty goods and services - have suffered the largest rent drop. Their average asking rent of $17.85/sf dropped 3.7 percent in the first quarter and is down 10.2 percent from a year ago.

    Shopping centers' average asking rent of $16.36/sf was down 2.9 percent for the quarter and 8.6 percent for the year.

    Fuchs noted that small retail-property performance typically tracks the performance of local housing markets.

    Florida, which has among the weakest housing markets, is also home to some of the worst-performing small retail markets. Fort Meyers recorded the steepest quarterly drop in street retail rents at 12.7 percent, while the Melbourne/Palm Bay and Sarasota markets recorded the sharpest shopping center rental declines at 7.2 percent and 6 percent, respectively.

    Comments? E-mail John Covaleski or call him at (215) 504-2860, Ext. 208.

    Copyright © 2009 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

  • "Key Scraps Small-Balance Program." Posted with permission from Commercial Mortgage Alert (www.CMAlert.com). April 3, 2009.
  • "Small-Cap Commercial Properties See Continued Rent Drops." Commercial Real Estate Direct. March 25, 2009.
  • Rents at small commercial properties have continued to fall across the board, according to Boxwood Means Inc., with declines accelerating in recent months.

    Because leases at small-cap properties tend to be shorter in term than those at large-cap properties, their performance tends to react more swiftly to economic downturns than do the performance of larger-cap properties.

    Boxwood Means, a Stamford, Conn., research firm that compiles property-level operating and sales data on small-cap properties through a partnership with LoopNet Inc., found that the industrial sector has so far been the hardest hit, with rents falling 78 basis points in February alone and 2.27 percent between last November and February. They now stand at $7.89/sf, down 6.29 percent from a year ago.

    That decline was driven by especially soft conditions in certain regions, such as the Southeast, where industrial rents have fallen 10.2 percent from a year ago, to $7.38/sf, and fell 3.52 percent in the last quarter alone. That could be attributed in part to the relatively low barriers to entry, which made it easy to develop in that region when economic times were better, explained Randy Fuchs, principal and co-founder of Boxwood Means.

    In contrast, industrial rents in the Northeast are down only 1.6 percent in the past year, while the Mid-Atlantic is down 3.37 percent.

    Retail properties have fared poorly as well, falling 4.62 percent in the year through February to an average of $18.47/sf. Between December and February, rents fell 1.62 percent.

    Large-cap retail community centers, meanwhile, ended last year with rents averaging $20.52/sf, unchanged from a year earlier, according to Reis Inc. That anomaly could be explained by the nature of the tenants at small-cap properties, which could be viewed as retailers of non-essential goods and services, such as non-chain affiliated restaurants and nail salons. Consumers tend to more quickly scale back purchases at such retailers in recessionary times.

    Retail rents in the Midwest saw the biggest declines, falling 7.02 percent over the 12 months through February, to $13.92/sf. And in the West, they were down 6.12 percent to $21.97/sf. The Southwest saw rent declines of 2.62 percent, while the Northeast saw a decline of 1.87 percent.

    Small office properties have so far weathered the economic storm relatively well, with a 1.66 percent decline over the past year to $17.24/sf. While the loss of jobs at large companies, especially financial institutions, has been well publicized, those losses were felt mostly by large-cap buildings. Small-cap buildings tend to attract local and regional businesses that might be better able to weather economic downturns. Boxwood also noted that consumption-driven recessions "generally tend to affect industrial and retail-oriented businesses before any significant fallout is felt among office users."

    Indeed, office rents in the Northeast actually rose by 77 bp to $18.22/sf, while rents in the Mid-Atlantic rose by 66 bp to $16.33/sf. But in the Southeast, they fell by 5.19 percent to $15.60/sf and in the Southwest they fell by 3.33 percent to $15.99/sf.

    Boxwood warned that rents at small-cap properties would remain "under pressure" through the end of the year.

    Copyright © 2009 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

  • "Need a $750K Loan? Don't Panic." Multi-Housing News. March 2, 2009.
  • "Community Banks Increase Small Business Loans." BusinessWeek. January 27, 2009.
  • "Big-Bank Troubles, Small-Bank Opportunity." American Banker. December 16, 2008. (Subscription required for access.)
  • "Rents at Small-Cap Commercial Properties Fall for 7th Month." Commercial Real Estate Direct. November 10, 2008.
  • Rents at small commercial properties have continued to fall across the board, according to Boxwood Means Inc., with declines accelerating in recent months.

    Because leases at small-cap properties tend to be shorter in term than those at large-cap properties, their performance tends to react more swiftly to economic downturns than do the performance of larger-cap properties.

    Boxwood Means, a Stamford, Conn., research firm that compiles property-level operating and sales data on small-cap properties through a partnership with LoopNet Inc., found that the industrial sector has so far been the hardest hit, with rents falling 78 basis points in February alone and 2.27 percent between last November and February. They now stand at $7.89/sf, down 6.29 percent from a year ago.

    That decline was driven by especially soft conditions in certain regions, such as the Southeast, where industrial rents have fallen 10.2 percent from a year ago, to $7.38/sf, and fell 3.52 percent in the last quarter alone. That could be attributed in part to the relatively low barriers to entry, which made it easy to develop in that region when economic times were better, explained Randy Fuchs, principal and co-founder of Boxwood Means.

    In contrast, industrial rents in the Northeast are down only 1.6 percent in the past year, while the Mid-Atlantic is down 3.37 percent.

    Retail properties have fared poorly as well, falling 4.62 percent in the year through February to an average of $18.47/sf. Between December and February, rents fell 1.62 percent.

    Large-cap retail community centers, meanwhile, ended last year with rents averaging $20.52/sf, unchanged from a year earlier, according to Reis Inc. That anomaly could be explained by the nature of the tenants at small-cap properties, which could be viewed as retailers of non-essential goods and services, such as non-chain affiliated restaurants and nail salons. Consumers tend to more quickly scale back purchases at such retailers in recessionary times.

    Retail rents in the Midwest saw the biggest declines, falling 7.02 percent over the 12 months through February, to $13.92/sf. And in the West, they were down 6.12 percent to $21.97/sf. The Southwest saw rent declines of 2.62 percent, while the Northeast saw a decline of 1.87 percent.

    Small office properties have so far weathered the economic storm relatively well, with a 1.66 percent decline over the past year to $17.24/sf. While the loss of jobs at large companies, especially financial institutions, has been well publicized, those losses were felt mostly by large-cap buildings. Small-cap buildings tend to attract local and regional businesses that might be better able to weather economic downturns. Boxwood also noted that consumption-driven recessions "generally tend to affect industrial and retail-oriented businesses before any significant fallout is felt among office users."

    Indeed, office rents in the Northeast actually rose by 77 bp to $18.22/sf, while rents in the Mid-Atlantic rose by 66 bp to $16.33/sf. But in the Southeast, they fell by 5.19 percent to $15.60/sf and in the Southwest they fell by 3.33 percent to $15.99/sf.

    Boxwood warned that rents at small-cap properties would remain "under pressure" through the end of the year.

    Copyright © 2009 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

  • "Banking and Finance: Wamu's buyer vows to build on apartment unit's success." Puget Sound Business Journal. October 3, 2008.
  • "Small-Balance Lending Plunges." Posted with permission from Commercial Mortgage Alert (www.CMAlert.com). August 8, 2008
  • "Small-Balance Lenders Shift Gears." Posted with permission from Commercial Mortgage Alert (www.CMAlert.com). June 27, 2008.
  • "Investors Find Safe Havens In Office, Storage And Retail." Investor's Business Daily. May 29, 2008
  • "Apartment Investors See Good And Bad From Homes Slump." Investor's Business Daily. February 28, 2008
  • "Small-Balance Loan Originations Stayed Strong Last Year." Commercial Real Estate Direct. February 27, 2008
  • Lenders continued to write small-balance commercial mortgages at a healthy clip last year, despite turmoil in the capital markets.

    According to Boxwood Means Inc., a Stamford, Conn., research firm, some $29.1 billion of small-balance loans, defined as having balances of $5 million or less, were originated in the fourth quarter. But that data is preliminary and is likely to grow as the company gathers information from late-reporting counties across the country.

    Boxwood Means gathers the bulk of its data directly from county mortgage recording offices, a laborious process that takes several months to complete.

    Full-year originations so far total nearly $134 billion, or roughly 4.3 percent less than the $140 billion that was originated in 2006. But it could end up topping last year's volume. In any event, origination volumes for small loans remained healthy, while those for the broader commercial mortgage market fell in both the third and fourth quarters, according to Federal Reserve data analyzed by the Mortgage Bankers Association. And that's largely because of disruptions in the capital markets that made it difficult for lenders that rely on a securitization exit to effectively price their loans.

    The thinking had been that the small-balance market would move in lock-step with the broader market. But, according to Randy Fuchs, a principal and co-founder of Boxwood, low interest rates have been very favorable to borrowers, resulting in solid demand.

    In addition, "this isn't the securitization market," Fuchs said. "This is how America's businesses finance their businesses."

    While some lenders have had a securitization exit strategy in their plans, a large portion of lenders in the market are banks and credit companies. Indeed, two of the latter, GE Capital and Bayview Financial Holdings, saw sharp increases in their market shares.

    The softening of property prices has changed the make-up of origination volumes. A total of 66 percent of the loans originated in the fourth quarter were made to refinance existing loans. That's 11 percentage points greater than the same period a year ago. The remaining volume was originated to facilitate the purchase of properties.

    "Clearly, acquisition/purchase loan volumes continue to decline as the investment market turns increasingly unclear," Fuchs said.

    The top-five lenders in the business are Washington Mutual, with roughly 6 percent of the market and Wells Fargo, Wachovia Bank, Bank of America and Citigroup, each with about 2 percent of the market.

    A significant portion of small-balance loans areŇ°provided for single-tenant properties that are generally owner-occupied.

    Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211.

    Copyright © 2008 Commercial Real Estate Direct. All rights reserved. www.crenews.com

  • "Small-Balance Lenders Hang On." Posted with permission from Commercial Mortgage Alert (www.CMAlert.com). February 8, 2008.
  • "Big Commercial Lenders Pursue Small Fries." National Real Estate Investor. February 1, 2008. [By clicking this link, you will access this article on the NREI web site.]
  • "Small-Balance Loan Market Starts Seeing Impact from Credit Tightening." Commercial Real Estate Direct. October 29, 2007.
  • The origination of small-balance commercial mortgages started to decline in the second quarter, reflecting weak market conditions in both the commercial and residential mortgage sectors.

    According to Boxwood Means Inc., a Stamford, Conn., research firm that tracks the market, $34 billion of loans with balances of $5 million or less were originated during the second quarter, the last period for which data is available. That's down slightly from the first quarter. But if you take the total originated during the 12 months ended June 30, and compare it to the same period a year earlier, volumes have fallen by nearly 5 percent to $139 billion. And if you compare that 12 month period to the one ended March 31, the decline has been nearly 10 percent.

    "If we take a longer view, we're starting to see erosion" in the market, said Randy Fuchs, a principal and co-founder of Boxwood. The company's data is compiled from public tax rolls and deed transfer records at counties across the country. As a result of the complexities involved in gathering and scrubbing that information, the latest data it has available is for the second quarter.

    A sure sign that the troubles in the residential market are touching small commercial properties is the fact that 57 percent of all small-balance loans were originated for refinancing purposes. Historically, loans for property purchases and refinancings were evenly split.

    "The seeds of some changes are embedded in these numbers," Fuchs said, predicting that origination declines and the purchase/refi split will be even greater when data for the third and fourth quarters are available. .

    Many owners of small-capitalization properties are individuals who might have tapped some of the equity built up in their homes to fund their investments. As their ability to tap that equity has been diminished, because of the tightening of credit, their ability to fund acquisitions has shrunk. Their difficulty in funding acquisitions is compounded by the decline in residential property values, which shrinks the amount of equity they might have in their homes. That's a dynamic that doesn't figure into the softness in the larger-cap property market.

    Nonetheless, the small-balance market remains a relatively sizable market. The market for originating such loans remains highly fragmented. Washington Mutual Bank dominates the sector with a 5 percent market share, according to Boxwood. No other lender has more than a 2 percent share of the market. Other top lenders include Wells Fargo Bank, Wachovia Bank, Bank of America and Citigroup. Fuchs said Lehman Brothers, Sovereign Bank and GE Capital have each gained market share.

    Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211.

    Copyright - 2006 Commercial Real Estate Direct. All rights reserved. www.crenews.com

  • "Downturn Stymies Small-Balance Mortgages." Posted with permission from Commercial Mortgage Alert (www.CMAlert.com). October 26, 2007.
  • "Can Dealmakers Still Dabble in Small-Balance Multifamily?" Commercial Mortgage Insight. October 2007.
  • "Small-Cap Attraction." National Real Estate Investor. May 1, 2007. [By clicking this link, you will access this article on the NREI web site.]
  • "Mortgage Brokers Still Control The Distribution of Small Loans." Commercial Mortgage Insight. April 2007.
  • "Small Banks, Big Risks." National Real Estate Investor. February 1, 2007. [By clicking this link, you will access this article on the NREI web site.]
  • "Small-Loan Origination Activity Seen Increasing." Commercial Real Estate Direct. December 1, 2006.
  • Activity in the small-balance commercial lending arena is expected to continue heating up.

    Last year, a record $134.4 billion of such loans - defined as having balances of less than $5 million each - were originated, according to Boxwood Means Inc. And the Stamford, Conn., research firm projects that this year will set a new record. That's largely because of solid property fundamentals and improved liquidity. And a survey it recently conducted found lenders similarly bullish: 60 percent said their volumes are "significantly ahead" of last year's.

    Boxwood Means, which gets its data from mortgage records filed with counties across the country, found that the lending market remains highly fragmented. Its survey, conducted with Scotsman Guide, a magazine targeting lenders and the loan-broker community, determined that the average annual production of small loans is $380 million per lender. And more than half the lenders questioned had less than $100 million of originations.

    That means the industry is populated by "literally thousands" of originators, according to a report on the survey, Market in Transition: 2006 Small-Balance Commercial Mortgage Lenders Survey. The market traditionally has been dominated by local and community banks. But other players, notably residential lenders, are squeezing in.

    Most small loans are made against one-of-a-kind properties that often are owner occupied. Indeed, about a quarter of the 3 million properties in Boxwood's database are owner-occupied. That makes the business ideal for residential lenders, which generally have far-flung origination networks and have been seen making inroads in the market. .

    "The downdraft in the residential housing market has motivated residential-loan brokers to diversify into small-balance commercial lending," the report noted.

    What's more, many small-business loans are underwritten more like residential loans, where they rely on a borrower's credit history, rather than the collateral property's revenue capabilities. In fact, Boxwood found that 82 percent of all originations are recourse to their borrowers.

    Boxwood Means characterizes the small-loan market as the "finance frontier, where standards are lacking and market imperfections work to lenders' advantage." Its fragmentation means the market is ripe for consolidation, which could lead to greater efficiencies and lower costs. But that could take time.

    The biggest player in the business is Washington Mutual which commands a mere 4 percent market share. And the top-15 lenders in the space account for only 20 percent of the year's production. In contrast, the top three conduit lenders accounted for more than 25 percent of the conduit originations this year through September.

    Because small-balance loans are generally not homogenous like conduit loans are, they haven't been securitized at the same rate. But that's changing. For instance, no fewer than four small-balance CMBS deals are in the market. Among the players that have securitized their small-balance originations: CBA Commercial, Bayview Financial, Imperial Capital Bank, LaSalle Bank and Lehman Brothers Small Business Finance.

    Boxwood found that 55 percent of lenders it surveyed already originate loans with a securitization exit in mind or plan to do so within the next year. The remainder are mostly portfolio lenders. But it noted that many of those that already originate for securitization end up peppering their loans in larger conduit deals.

    A total of $167.6 billion of CMBS was issued last year, when some $330 billion of commercial mortgages were originated.

    Copyright - 2006 Commercial Real Estate Direct. All rights reserved. www.crenews.com

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