United Bank & Trust Blog

I attended the annual Mortgage Bankers Association – Commercial Real Estate Finance Conference (MBA-CREF) last week in San Diego and for the first time since 2007 felt a genuine sense of optimism and enthusiasm relative to the state of the commercial real estate finance industry…albeit cautious.

According to the MBA’s Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations, $110 billion of loans were originated in 2010, up 36% from 2009. Leading the way were life insurance companies with volumes 155% higher than in 2009. In addition, Fourth Quarter 2010 overall loan originations jumped 63% over the same period in 2009.

Additional reasons for optimism include:
1. Commercial Mortgage Backed Securities (CMBS) markets are poised for a comeback – 25 firms have now set up CMBS/Conduit operations and expect to originate $68 billion in new commercial real estate loans in 2011, up from only $12 billion in 2010. Although this pales in comparison to 2007’s record mark of $230 billion of CMBS originations, it represents significant head winds for liquidity in the market.
2. Life insurance companies will once again have capital available and continue to lend in 2011.
3. Government Sponsored Enterprises (GSE’s) such as Fannie Mae and Freddie Mac, along with HUD will increase deal flow this coming year.

With the fresh capital available and market enthusiasm we experienced, it generally means we are slowly returning to some form of normalcy in the commercial real estate finance industry. It could also mean competition is forming and well presented loan opportunities could experience improved loan terms (interest rates and leverage).

Negating some of the optimism was a general consensus from industry experts that 2011 could be the high water mark for distressed commercial real estate activity. Although the ratio of newly defaulted loans to resolved loans is leveling, this year could be the highest volume of distressed assets to hit the market.

For more information regarding commercial mortgage originations, please see the MBA “Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations” or contact me at jkleinschmidt@ubat.com if you have any specific questions or comments.

In December, our Wealth Management Group Focus Newsletter reported on the uncertainty regarding the federal estate and gift tax system. Since that time, we received some certainty from Congress…at least for the next two years regarding these tax systems.

On December 17, 2010, President Obama signed The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”) into law.

Prior to its passage, we knew the following:
• No federal estate tax for 2010
• Limited step up in basis for assets of individuals who died in 2010
• 2001 Bush tax cuts were set to expire if Congress did not act before the end of 2010

If Congress had not acted:
• The favorable 15% dividend and capital gain rate would have increased in 2011
• Federal estate taxes were to be reinstated in 2011 with a $1 million exemption amount (the amount you can shelter without incurring federal estate tax liability) and a highest tax rate of 55%, with a 5% surtax on large estates
• The highest rate on the gift tax would jump from 35% in 2010 to 45% in 2011

Planners were waiting and watching to see what, if any, action would take place in order to appropriately advise clients on their estate planning. With the passage of the Act, some long awaited questions were answered.

Key features of the Act include:
• The 15% dividend and capital gain rate is extended
• $100,000 distributions to charities from IRAs are reinstated for those individuals who are age 70 ½ and older for 2010 and 2011
• The federal estate and gift tax system is re-coupled by providing a highest tax rate of 35% for both tax structures along with a $5 million exemption amount
• The generation skipping tax also has a 35% highest tax rate along with a $5 million exemption amount
• Full step up in basis is once again applicable to every decedent starting in 2011

In addition, the Act provides for the portability of unused exemption amounts between spouses. Together spouses can shelter up to $10 million in assets from federal estate and gift taxes.

Of critical importance is that the favorable estate and gift tax provisions along with the dividend and capital gain rates are only in place for the next two years. They are scheduled to expire on December 31, 2012. Unless Congress acts to make these changes permanent, it is very likely we will be in the same position in 2012 that we were in at the end of 2010. And, the federal estate tax exemption amount is scheduled to roll back to $1 million, with a highest tax rate of 55% on January 1, 2013.

We will continue to advise you on your estate planning with these rules in mind and will encourage you to visit with your CPAs and attorneys to discuss your estate planning situation. If you would like to talk more about the Act or have any other estate planning questions or concerns, please feel free to contact your relationship manager. Our goal is to keep you up to date and well advised by working with you and your CPA and attorneys regarding your estate planning needs and goals.