Monday, February 23, 2015

The SBA and pervicacious

Very stubborn.
From Latin pervicax (stubborn). Earliest documented use: 1633.

Nothing pervicacious about commercial real estate.

According to CoStar, commercial real estate prices are up over 10% from last year.  

Real estate has also recovered from the recession with prices now above the previous peak in 2007.

This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at December 2014 commercial real estate pricing. Based on 1,672 repeat sales in December 2014 and more than 130,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity. 

Let me know if you would like a copy of CoStar’s February 2015 CCRSI release.

SBA loans can be used for commercial real estate purchases and refinances.


SBA LIBOR Base Rate February 2015 = 3.17%
SBA Fixed Base Rate February 2015 = 4.75%
SBA 504 Loan Debenture Rate for February      

The debenture rate is only 2.46% but note rate is 2.51% and the effective yield is 4.546%.       


Do you think interest rates are being pervicacious?

Many people think that the Federal Reserve will soon shed their pervicacious ways and start raising interest rates soon.

Minutes from the last Fed meeting on monetary policy however noted something different.   It sounds like rates might stay lower longer than a lot of people think.

One of the Fed’s favorite gauges of the economy is the capacity utilization rate which measures how much plants and factories are being used.  The Federal Reserve watches capacity utilization rates to see if production constraints are threatening to cause inflationary pressures. Bottlenecks or shortages often lead to inflationary pressures that would drive prices even higher.   Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.  The Federal Reserve typically won’t initiate increases in interest rates until then.

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- 66.9
2010- 74.8
2011- 76.7
2012- 79.0
2013- 77.8
2014- 78.8

Last week the Federal Reserve reported that capacity utilization was unchanged in January at 79.4 percent.

What does this mean?

I don’t know.

While up 12.5 percentage points from the record low set in June 2009 it is still below the pre-recession level of 80.8% in December 2007.

The Federal Reserve can continue to be pervicacious about interest rates.

The most pervicacious people in the world just might be Cubs fans.
The Cubs have not been to the World Series since 1945 and have not won a World Series since 1908.
The Cubs will win the 2015 World Series, at least according to the 1989 movie Back to the Future 2.

Only 13 days to daylight savings time and 42 days to Opening Day.

Tuesday, February 17, 2015

SBA 504 Loan Debenture Rate

SBA 504 Loan Debenture Rate for February      

The debenture rate is only 2.46% but note rate is 2.51% and the effective yield is 4.546%.

Monday, February 9, 2015

The SBA and frustraneous

Useless; unprofitable.

From Latin frustra (in vain).

SBA loans are NOT frustraneous.

SBA 7(a) loan volume has totaled $6,489,661,500 since the government’s fiscal year began October 1st.  This is a 26% increase over the same period last year.  

The proposed budget for next year calls for SBA to support $21 billion in loan guarantees for the flagship 7(a) program, the biggest such request in history.  

This is not a frustraneous use of taxpayer dollars.  For fiscal year 2016, the administration contemplates a $701 million budget for SBA, less than the $733 million Congress granted it for the current year.

But the proposed cuts appear to have more to do with improved loan performance rather than a reduction in programs or services.  There is $0 in taxpayer subsidy for the SBA guarantee loan programs.


SBA LIBOR Base Rate February 2015 = 3.17%
SBA Fixed Base Rate February 2015 = 4.75%
SBA 504 Loan Debenture Rate for January      

The debenture rate is only 2.52% but note rate is 2.56% and the effective yield is 4.60%.       


The economy is not as frustraneous as it once was.

The U.S. labor market leaped forward in January, capping the greatest three-month jobs gain in 17 years.  Payrolls advanced by 257,000 last month following increases in December and November that were even bigger than previously reported.  Employment in November was revised up to a 423,000 gain, the most since May 2010.  Payroll gains averaged 336,000 over the last three months, the strongest since 1997.  Total employment is now 2.5 million above the previous peak and up 11.2 million from the employment recession low.

Last time the Federal Reserve met, they said that they could be “patient” on raising interest rates.  The Fed also dropped a clause from its December statement that the assurance of patience was consistent with a previous pledge to hold rates low for a “considerable time.”

So how long before the Fed loses patience and starts to raise interest rates?

Eurodollar futures settle at a three- month lending rate that has averaged about 22 basis points more than the Fed's target over the past 10 years.

Here is a summary of what the market expects for Eurodollar futures based upon the pit-traded prices at the Chicago Mercantile Exchange:

DEC15- 0.865
DEC16- 1.66
DEC17- 2.125
DEC18- 2.37
DEC19- 2.54
DEC20- 2.69

What does all this mean?

I don’t know.

Eurodollar futures currently imply a federal funds rate well below the indications of just three months ago.  For example, the December 2020 rate is now 66 basis points lower.

Keep your eyes and ears open for this week’s auction of 30 year Treasury bonds.

After the Fed’s meeting, the 30 year Treasury bond dropped 10 basis points to 2.30 percent, an all-time low.  
Last month’s auction of $13 billion in 30-year bonds drew a yield of 2.430 percent, below the previous record of 2.580 percent in July 2012.  
After the jobs report on Friday,  the 30-year Treasury added 10.1 basis points to 2.523%.

This distinct flattening of the long end of the yield curve implies investors are rethinking the timing of Federal Reserve interest-rate hikes.

If it ends up being a frustraneous week, go ahead and take Monday off.
It’s Washington’s Birthday!
Officially it is Washington’s Birthday and NOT “President’s Day.” 

In 1968, Congress passed the Uniform Monday Holidays Act, which moved the official observance of Washington's Birthday from February 22nd to the third Monday in February.  An early draft of the Uniform Monday Holiday Act would have renamed the holiday to "Presidents' Day" to honor the birthdays of both Washington and Lincoln, since Lincoln’s is February 12th.  This proposal however failed in committee and the bill as voted on and signed into law on June 28th 1968, kept the name Washington's Birthday.

According to the Federal Reserve, here are our holidays for 2015:
Washington's Birthday February 16
Memorial Day May 25
*Independence Day July 4
Labor Day September 7
Columbus Day October 12
Veterans Day November 11
Thanksgiving Day November 26
Christmas Day December 25 

*Independence Day this year falls on a Saturday – so the Board of Governors is closed on July 3, 2015 and bankers get a three day weekend!

Friday, February 6, 2015

SBA 7(a) Loan Rate Update


SBA LIBOR Base Rate February 2015 = 3.17%
SBA Fixed Base Rate February 2015 = 4.75%
Lenders can charge up to 2.75% over these indices.