[Note: To follow is an excerpt of a radio show interview conducted by Peter L. Mosca, host of Income Property Investment Talk dot com, with Steven Moreira, CCIM, CIPS, and CEO and sole stock-holder of the 4-Quadrant Magic Companies, who provides a comprehensive look at the financial markets, financing, and what is happening on the streets in the marketplace, right now in terms of funding and lending. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/021010.]

Mosca: Before we start talking about the Magic Companies, I was hoping you would break out your crystal ball, talk to us about 2010. Most of us in the real estate industry were grateful to say good-bye to 2009; many felt it was the worst year in their professional history. Do you think people will feel that way at the end of 2010 as well?

Moreira: It depends on what property type you're dealing in. We're seeing quite a bit of velocity in the Florida markets, with purchases of residential housing by the smart investors that are going to get the best deals that they will probably ever get in their lifetimes on a residence or second home, providing of course, that they're cash-buyers or they have access to some type of financing. The commercial side, that really is where the crux of the problem is right now. There's no liquidity in the marketplace, banks just aren't funding and making loans at this time. That's going to guide whether or not 2010 will be able to have at least a smooth glide through the bottom and get back up and running again for commercial real estate towards the end of this year. There's just not very much liquidity right now, and Washington had better start working on that scenario and concentrating on that rather than a lot of political issues because without commercial real estate flying in the U.S., we're going to be on the bottom for awhile. We desperately need some more thought put into the process to get liquidity into the marketplace for commercial properties.

Mosca: That's a great look at it. I mentioned that your expertise in both residential and commercial, and your four-quadrant company. I'm sure I confused some people. Why don't you take this time to give us a brief introduction of the Magic Companies, and the products and services that you offer to the various segments within the real estate industry?

Moreira: We've had an evolution in Magic since 1994. I started the name Magic when I was practicing residential real estate early in the 90's when the last refi boom began in the early time of the Clinton years. I was financing residential real estate at that time, quite a bit of it, and evolved Magic Financial Services because the Magic Kingdom is here in Orlando, and Magic Financial Services has been here since the 90's, so I was looking for name association in the newspaper and my other advertising mediums. Having come from a nightclub and restaurant background the first 20 years of my career -- I'm on the second life here in my 50's -- I began to use Magic Companies because I started a real estate company to service lenders who had troubled properties to deal with even in the 90's, but that was single one-up units. It was never the influx of what we have now. The other two Magic Companies was during the boom times of the 'Walgreen' days, when you could sell a drugstore, CVS, and everyone was looking at that as an investment. Magic Companies began to deal on a lot of gas station properties that were being sold to convert to drugstores. A lot of corners were gas stations, so Energy Capital Properties was involved, which is my third company. For a while, that was like shooting fish in a barrel. Allied Capital Advisors was borne from me being a former correspondent with Allied Capital out of DC. They didn't have the name here in Florida, so I had used that for my own investment company because during it's heyday Allied Capital was a great company for us as far as Magic being a correspondent for them. I was just emotionally attached, so I used Allied Capital for my kid's development company. Another company I've recently started is a company called Thermo-Green Windows. We're building green windows right now for apartment rehabs and commercial rehabs because we are seeing a lot of rehab work being done. We're actually creating a few jobs down here in Central Florida with the investment into that company. I've learned in my business career is that the change you have to believe in is a belief in yourself. You have to realize that everything's going to change every year, and it has since I've been in business in the 70s and 80s. You have to look for opportunities and be flexible, be willing to change and be willing to go into areas that you never thought you'd go in, because we never stop learning. So the better you apply yourself to looking into other areas, I think it's been successful for me in developing my companies, and I think that's good advice for anybody that's an investor or real estate professional.

Moreira: Insurance companies are out looking to finance deals right now. You could get a good 60, 65, maybe 70% loan of value refinance from an insurance company if you really don't mind getting in line. They're going to look at 100 deals and pick the 7-10 best. That's what you would expect any investor to do in these times, and they're going to underwrite them as tight as you could possibly underwrite them to hedge every risk. Everyone wants to keep their job, even insurance company lending underwriters. That's one area where there will be money capital provided, but the biggest problem we have right now is CMBS [commercial mortgage backed securities]. There really isn't a CMBS market out there, mortgage securities aren't being sold at this point, and that's where I think the government has to go back to the drawing board and be helpful. On banks, we need to break it down to the large national banks versus the community banks. That what I would look at as an investor. Large national banks are still looking at the large-scale picture of risk. Underwriting is going to be as tough as it is ever going to be, and everybody's looking at each other carefully, not to make a mistake. If I was an investor in any area in this country, I would be looking real hard at what community banks are liquid, not having financial problems, and where I can establish a relationship, and I'd get to know that local bank president. That seems to be where the positive government stimulus is going to come out of Washington next. I know the President talked about 30 billion dollars that he was going to put into community banks for SBA lending. I think a relationship oriented community bank that isn't having financial problems now and has access to capital and government assistance is where our investment community first is going to be able to find some liquidity and get some loans. SBA is still alive and well, but if they get the 30 billion stimulus, I think that would be more helpful. There's some talk that they're going to put some other investment real estate ranging from office buildings and retail strips, warehouses. As far as actual asset classes, the only asset class working down here in Central Florida is assisted living facilities (ALF) and maybe apartment lending through the FHA HUD Program.

Mosca: How effective can an SBA 504 loan be right now?

Moreira: The caveat for SBA is that it has to be an owner-user. If it's an existing property, you have to occupy 51%. If you're going to build something new, it's 66 2/3 with a business plan to occupy 100% of it down the road. On 504, I think you need one job for every $65,000 in loan amount that you're going to get over and above real estate. As far as what you can use the loan for right now, you can buy commercial-used land and buildings, you can also finance ancillary costs such as the street improvements, utilities, parking lots, and landscaping. If you can get a construction loan you can construct a new building. I think renovations of existing buildings will get you through the process a lot further, and it's a good time if you're paying rent and own a business and you're not in your own facility, to take a look at that 504. You've got a lot of flexibility with SBA, and a number of local banks everywhere doing them, and a couple non-bank lenders. There's opportunity for folks who have never looked at the SBA program to do so.

Mosca: What about cash buyers?

Moreira: As for cash, we do work with a number of institutional players. The cash that is sitting on the sideline with the investment funds at this point is very smart capital. It's not really an asset type that I think anybody is savoring right now; it's a price point. The way an investor that has actual money looking at the sidelines or an investment fund manager has to look at it is he's got to get an internal rate of return on existing cash flows of at least 12%, hopefully 15%. Of course he doesn't have an exit strategy right now for refinancing, and I'm talking about any property type, so you name it: office, retail, hotel, it's going to get underwritten down on an offer once you go to an investor for the capital or if you're a cash investor, to where that income is going to have to produce 12%. I don't think anybody's going to take less than 10% who really has money to buy it. What you're seeing is a repricing, retrading, and deep discount offers on properties that are selling. If you've got an existing property that you're looking to sell at 2007 or 2008 prices, I wish you a lot of luck, because I'm sitting on a bunch of them. Hopefully I'll be able to maintain them until this market turns because I don't want to give my stuff away. I think that's what most sellers are looking at. But the real listing for a real estate professional today who has made the changes and evolved into where you are, your listing seller is a bank. It's a lender. It's a person that's doing the short sale. For instance, if you're paying a million dollars for something, you're looking for $120,000 in rental income. That's tough right now, so what you have are the folks who are still able to hang on, including the banks, who've gotten some assistance.

Mosca: Anything more on financing?

Moreira: What I got from the Globe Street report is that the lenders are willing to finance a medical office facility with a lease guarantee from UCLA. I don't think they are going anywhere. The New Jersey State government the same so, we have government and medical stimulus for starters. Back to my comments, an investment fund would look for a minimum of 10 to 12% and I am going to say more likely 12% cash on cash of present cash flows. The discount of debt or the distressed seller is going to drive sales this year. Banks will come to reality as the FDIC continues their liquidations, and we will see a re-pricing of the markets. The next lender we could look at is the private lender. There is a lot of private capital out here with the same type of underwriting and an interest rate closer to 15%. When you do business with a private lender realize where they are going to go with the appraisal. It really pays to get a good mortgage broker or good mortgage banker involved if you have never dealt with a private lender. You are going to need a good intermediary who will check the sources and referrals of that lender. So, I would tell our listeners to really be careful when they are looking at private funds and believing that a private loan is going to go as smoothly as it used to in your bank. You need to get the right advisor and the right deal for the right lender for that to work out. I would be willing to advise some folks. I don't charge any fees for any thing unless the deal gets done. I'll take a conversation, but it's better if you have a summary and something that I could discuss with some of my intermediaries that could possibly make the deal happen. We prefer over 10 million and of course love medical and assisted living and senior assets. That's where we are most aggressive at this point.

Mosca: When do you think financing might act like the phoenix, rise up from the ashes and come back to power the economy again?

Moreira: The way I see it, I am a capitalist. I'm an American. I'm doing this for 30 years, and I've been through two cycles, this cycle too will pass. Will it happen through 2010? There will be little pockets. I don't know about the phoenix rising. I see it more like the elevator is broken so you are going to have to walk the ten stories and take a step up and one step at a time to improve your own standing and your own investment formulas going forward through 2010. I do believe that we will look back at this time by 2012 and we will say, “Wow, look at all the great opportunities that if I didn't sit on the fence so long I passed on.” Generally people start coming into the market well after it improved. One of the most positive signs right now is the residential market. We sell residential properties and we represent investors that own pools and are selling homes and short sales after they buy them. A residence or a rental property down here in Florida is literally half r 40% of what it used to be and if you are a cash buyer it's a great time to look at some residential deals in any market, in any state if you can find your way through the short sales and get a good advisor. If you don't own a home now, look at the FHA 203K rehab. You can pick up on an FHA loan through the right lender a home that needs $20,000/$30,000 in repairs, up to $35,000 and you can get that money to repair it. Eventually banks will start lending money for rehab too. We should move our existing inventory before we start developing and building and as the year goes on, then we start building new again. Patience is the key. The smart investors I talk to everyday are willing to kiss 100 frogs to meet a princess. They are looking at deals and they are doing it very wisely. It's just painful when, two years ago you would give somebody an 8% return with the rental income and they were happy. Today, you've got to give an investor a 12% return and you have to show them that when the market turns around, they are going to make 25% on your money. It takes a lot of work and it takes kissing a lot of frogs before you meet the princess.

Mosca: Steve, that's a great way to look at it and unfortunately we have about 30 seconds left in the show. What is your golden nugget?

Moreira: If I am an investor now, look at the residential stuff and the great deals first that are out here now and watch the markets carefully and get in your community bank and create a relationship to make some money right in your home town.

Copyright � 2010 Realty Times. All Rights Reserved.
Source: Realty Times Last Updated: 03/18/2010 12:30 AM CDT

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