The SBA and divagate

divagate
DY-vuh-gayt
To wander or digress.
From Latin divagatus, past participle of divagari (to wander off), from dis- (away) + vagari (to wander).
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TIP OF THE WEEK

Let’s divagate. The window is starting to close on opportunities in commercial estate.

According to Moody’s, things are picking up as September saw the third highest post-financial crisis level of repeat-sales.

The Moody’s/REAL Commercial Property Price Indices (CPPI) measure the change in actual transaction prices for commercial real estate assets based on the repeat-sales of the same assets at different points in time.

While pricing remains stagnant, September transaction volume was relatively high at 255 repeat-sales observations. The average monthly transaction count for 2011 is 192 compared with 144 for 2010 and 96 for 2009. Moody’s report for November also projects that within the next few years property prices should be just shy of where they were in August 2006.

Let me know if you would like a copy of the Moody’s/REAL Commercial Property Price Indices report for November.

SBA loans are especially well suited for commercial real estate purchase and refinance.
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Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate December 2011 = 3.27%
SBA Fixed Base Rate December 2011 = 5.09%
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504 Debenture Rate for November
The debenture rate is 2.76% but note rate is 2.807% and effective yield is only 4.94%.
For debt refinance with a 504 loan, the effective yield is 5.234%
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AHEAD OF THE YIELD CURVE

The Federal Open Market Committe meets on Tuesday and it is widely expected that they will continue to state that:

"The Committee ... currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."

In the Federal Reserve's eyes, resource utilization is gauged by capacity utilization which measures how much plants and factories are being used.

Keep your eyes and ears open for Thursday's Federal Reserve report on Industrial Production and Capacity Utilization.

Here is what capacity utilization rates have done:
1997- 83.6
1998- 83.0
1999- 82.4
2000- 82.6
2001- 77.4
2002- 75.6
2003- 74.6
2004- 79.2
2005- 80.7
2006- 82.4
2007- 81.5
2008- 79.9
2009- 67.3
2010- 74.8
2011- 76.7

What does all this mean?

I don't know.

Last month capacity utilization for total industry stepped up to 77.8 percent, a rate 2.1 percentage points above its level from a year earlier. This is up 10.5 percentage points from the record low set in June 2009. It is still however 2.6 percentage points below its long term average and the pre-recession levels of 81.3% in December 2007.

The day after the FOMC meeting the government plans to sell $13 billion of 30 year bonds. Last month’s sale of $16 billion of 30 year bonds drew a yield of 3.199 percent. Long term rates remain low thanks to Operation Twist. Last week the Federal Reserve purchased another $2.512 billion of Treasuries due from February 2036 to August 2041. The Fed plans to replace $400 billion of shorter maturities in its holdings with longer-term debt. The idea is that this will support the economy by keeping borrowing costs low.

The Federal Reserve will obviously be keeping both short term and long term rates low for quite awhile

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OFF BASE

It’s the most wonderful time of the year!

The commercial college football bowl season starts this weekend!

Commercial college football bowl season? Every college bowl game has a title sponsor.

It starts Saturday with the Gildan New Mexico Bowl.

Gildan makes Gold Toe Socks. Why the gold on the toe?

During the Great Depression it began manufacturing men's dress socks with a toe made from high quality Irish linen, which made the their product more resistant to holes and fraying than ordinary socks. A department store buyer informed company management that these durable socks were popular, but customers had difficulty distinguishing the product from its competitors. The manufacturer added gold acetate thread to the toes of its socks in order to make it visually distinctive on store shelves.

Speaking of socks, there was nothing more important to coach John Wooden than putting them on right. His first practice always began with a lesson on how to put your socks on right.

Hold up the sock and work it around the little toe area and the heel area so that there are no wrinkles. Smooth it out good. Then hold the sock up while you put the shoe on. You must not permit your socks to have wrinkles around the little toe--where you generally get blisters--or around the heels.