who we areMarshall Commercial Funding is an independent commercial mortgage brokerage firm dedicated to tailoring loans to meet the specific needs of our clients. Our goal is to excede our client's financing expections resulting in their desire to become partners for life. We specialize in loans requests of $1 million or above.


Twitter LinkedIn Facebook

Subscribe to our blog & mortgage solutions

SIGN UP today for our blog and Mortgage Solutions, and also receive for FREE the e‑book Secrets of a Commercial Mortgage Broker: How to Get the Best Possible Loan for Your Property, a $9.95 value on Amazon.com.
Secret of Commercial Mortgage Broker

Fill out the fields below to stay up to date with the commercial mortgage market.


Choose the e-book version you wish to receive:*



2016 (3)
2015 (22)
2014 (24)
2013 (26)
2012 (22)
2011 (25)
2010 (22)
2009 (30)
2008 (21)

Negative Interest Rates - Coming to a Bank Near You

Friday, February 5th 2016

In my January 9th blog post, “My Crystal Ball Forecast for Commercial Real Estate in 2016” I stated that even the most seasoned prognosticators will fail to predict major events occurring in 2016. And these unexpected events will have enormous influence on the economy and specifically on commercial real estate.

It took less than a month into the new year before one of these events occurred. I am referring to the Bank of Japan’s January 29th announcement to charge a negative interest rate on lending institutions who have excess reserve deposits. This announcement is a game changer on the world economy. But before I explain why, let me explain the Bank of Japan’s reasoning to take rates into negative territory.

This move comes after three years of quantitative easing where the Bank of Japan purchased Japanese government bonds to flatten yield curves to artificially bring down interest rates. The purpose of this economic policy was to spur economic growth by making it more enticing for businesses to invest or lenders to lend. Bottom line? It hasn’t worked as planned. Both the economy and inflation have not grown as they were hoping.

Lowering interest rates to less than zero on excess reserve deposits is a desperate attempt by BOJ to further stimulate their economy. The thinking goes that if investors are charged a fee for the privilege to park their money in their favorite lending institution then maybe they would prefer to take their money and invest it instead.

Japan has now joined eight other countries whose central banks are charging customers to hold their money. For example, German bonds have negative yields out to seven years.

Japan is the third largest economy in the world, only smaller than the United States and China, so the consequences of this negative interest rate policy (NIRP) are not just domestic but global. After the January 29th announcement, the Japanese yen plunged against the dollar, further strengthening the dollar at a time when the Federal Reserve is beginning to raise interest rates.

Fed policy is now out of step with the monetary policies of several of the world’s other central banks. How you ask? The Fed is tightening its money supply while most of the rest of the world is continuing to ease their’s.

There is mounting pressure for the Fed to change course. Ben Bernanke, former Fed chairman in a recent interview said, “I think negative interest rates are something the Fed will and probably should consider.” Former Fed Vice Chairman Alan Binder has proposed that the Fed charge a negative interest rate for overnight deposits.

The unintended consequences of the Fed maintaining their current monetary policy while the world marches to the tune of a different drummer could be dramatic.

  • There would be a further strengthening of the dollar when compared to other world currencies. This would make our exports less competitive and further slowing our domestic economy.
  • There would be a flight of the world’s capital to purchase our bonds. If you were an investor and wanted to park your money somewhere, would you buy U.S. bonds that have a modest rate of return or would you buy bonds with a negative interest rate? And if the value of the dollar is appreciating when compared to your domestic currency this provide further incentive to park your cash in the U.S. bond market.
  • Emerging market economies whose debt is in dollars would find it much more difficult to pay their debt obligations as the value of the dollar continues to rise.

I believe the Fed will have no choice but to stop raising interest rates on short term money. And if the U.S. economy falls into recession next year, one of the only remaining arrows in the Fed’s quiver will be to introduce negative interest rates to help spur the economy. Do I expect it this year? No, but I see it as highly possible in 2017.

How will this affect commercial real estate in the Pacific Northwest? I think long term, US bonds are headed lower. This means interest rates will continue to slide. Since the beginning of the year the ten year treasury has fallen from 2.27% to 1.83% as of today (February 5th). I wouldn’t be surprised if the ten year treasury falls below the most recent historic low of 1.43% (July 25, 2012) sometime this year and falls further in 2017.

You think we’ve got low interest rates now? It’s only going to get better.

Need financing?  E-mail me today for a free, no-obligation loan quote at doug@marshallcf.com.

Sources: Less Than Zero, Morgan Stanley, January 29, 2016; Bernanke says Fed likely to add negative interest rates to recession-fighting tool kit, by Greg Robb, Market Watch, January 29, 2016; Why the Fed must go negative on interest rates, by Ron Insana, CNBC, February 1, 2016.

What do YOU think? Click the link below to share your experiences or advice on this topic.


Share This Post

Apartment Rental Rates - Are We at a Tipping Point?

Friday, January 22nd 2016

In my last blog post, My Crystal Ball Forecast for Commercial Real Estate in 2016, I made five predictions about the coming year. One of my predictions was that 2016 will be the last year for modest growth for the US economy. Unfortunately it appears the world is heading towards a recession this year and the US will likely follow sometime early next year.

But today I want to focus on another prediction I made: Rental rates will continue to rise but at a much more modest pace than last year. I still believe that to be the case. The Fall 2015 Apartment Report, a publication by Multifamily NW, estimated that overall apartment rents increased at an annual rate of 9% last year in the Portland Metro area. And of course some areas of Portland & Vancouver increased substantially more than the average.

The good news is that I’ve been searching for any evidence in the Pacific Northwest that apartment rents are beginning to moderate and so far I’ve found nothing to support that position. Logic tells me that rent increases should moderate but there is no empirical evidence so far indicating that is happening.

However, when I search outside of our three state region for evidence of moderating rent increases I find that they have not only moderated, but they have shown a decline. So says a January 7, 2016 news article by the CoStar Group titled, U.S. Apartment Rents Decline in Fourth Quarter, Bucking Annual Trend.

For the first half of 2015 apartment rents grew nationally at an annualized rate of 9.4% based on an analysis of more 50 million rental units. For the last six months of 2015 the annualized rent increase slowed to 2.7% and the fourth quarter actually turned negative.

And as would be expected the newer, higher quality apartments were the first to feel the impact of lower rents. CoStar estimated that the top of the line apartment rents declined 0.6% in the fourth quarter or last year.  Rents dropped in San Francisco, Washington, DC, Denver, Boston, Austin, Houston, San Diego and Philadelphia.

So how does this trend affect the Portland apartment market? In the near term, I believe it has no impact whatsoever. I still expect apartment rents to increase at a moderate pace this year.

But this trend reminds me of the important role that canaries use to play in coal mine safety. Caged canaries were used by coal miners to determine if there were toxic fumes emanating from deep within the mines. If dangerous gases such as carbon monoxide collected in the mine, the gases would kill the canary providing advanced warning to the miners to get out.

Similarly, the decline in rents nationally is a warning of things to come in the Pacific Northwest. The actual timing of when it will happen here is dependent on many factors, the law of supply and demand being one for sure. But even in our region, where there are significant barriers to building apartments, at some point in the real estate cycle developers will build more units than there is demand causing the apartment market to reach a tipping point. Are Pacific Northwest apartment rents at a tipping point? Nope. But we are heading in that direction. Forewarned is forearmed. Consider yourself warned.

Need financing?  E-mail me today for a free, no-obligation loan quote at doug@marshallcf.com.

What do YOU think? Click the link below to share your experiences or advice on this topic.


Share This Post

My Crystal Ball Forecast for Commercial Real Estate in 2016

Saturday, January 9th 2016

I’ve always believed it’s better to have an opinion and later be found wrong than to be a person who has either no convictions or doesn’t have the courage to express them. So I respectfully disagree with the saying, “It is better to remain silent and be thought a fool than to open your mouth and remove all doubt.”

So where are we headed in 2016? Before I give you my thoughts on this topic, let me start by saying that some of the most important events in 2015 were not anticipated. No one:

  • Expected the continuing collapse of oil prices and commodities in general. The average price of gas nationally is currently $1.90 per gallon which is the lowest price since 2009.
  • Predicted the flight of millions of refugees from the Middle East, principally from Syria and Iraq, to invade Europe.
  • Guessed that Donald Trump would strongly influence the 2016 presidential race.

And I’m confident there will be other important events throughout 2016 that no one, not even the most seasoned prognosticators, will have anticipated. That said, there are really two questions that need to be answered in order to make reasonable predictions about commercial real estate in 2016.

  1. What is the health of the U.S. economy?
  2. Where are we currently on the real estate cycle?

Answering those two questions will go a long way in predicting the health of the commercial real estate market in the Pacific Northwest and beyond.

Even though the US economy is still growing at a modest pace there are four adverse factors influencing it:

  1. A strong US Dollar. The U.S. dollar index is up 9% in 2015 after gaining 13% in 2014. A strong dollar has a dramatic adverse impact on earnings of companies that do a significant amount of business outside the US.
  2. Depressed Energy Prices. Though we consumers like lower gas prices it is devastating to petro-dependent economies around the world including some US states.
  3. Rising Interest Rates. The reaction so far has been negligible. However many economist believe there may be several more interest rate hikes coming our way this year.
  4. China Contagion. We live in an interconnected world. China is our number one trading partner. It appears that they are having significant economic problems. If so it will have a significant impact on the world economy and ours as well.

I believe Tim Duy, economics professor at the University of Oregon, says it best: “One of two things is going to happen. Either the US economy is or will soon be slowing on the back of already tighter financial conditions, or the US economy will soon be slowing on the back of future tighter conditions as directed by the Federal Reserve.”

Last year I coined the phrase, the Silly-Stupid Phase to describe where we are currently at in the real estate cycle. Why silly-stupid? Because investors are buying properties at silly-stupid prices thinking that this phase in the real estate cycle is going to last forever. A useful tool called the Cycle of Market Emotions helps us understand how market phases are interconnected to prevailing moods like optimism, excitement, fear, panic and hope. The market phases look a lot like an emotional roller coaster.

We are presently at the very top of the real estate cycle characterized by euphoria, and for good reason. Rental rates have zoomed up in recent years, vacancies have been curbed, interest rates have are hovering around historic lows. Life has been very, very good for real estate investors. So what could change the rosy picture for real estate in the foreseeable future? I believe a downturn in the economy will eventually impact commercial real estate.

So here are my predictions for 2016:

  1. This year, 2016, will be the year of transition from a slow but steady economy to one that loses steam and goes into recession. 2016 will be the last good year of economic growth. Before the new president takes office in January 2017, the US economy will be headed toward recession.
  2. Even though the Federal Reserve is strongly suggesting future interest rate hikes, I believe interest rates for the 5 and 10 year U.S. treasuries will only increase modestly in 2016, maybe 50 basis points, no more. With the economy slowing the Federal Reserve will be hard pressed to raise rates.
  3. Rental increases will be much more modest than they have been for the past few years. But make no mistake, rents will go up some this year.
  4. Vacancy rates should remain steady except for possibly Class A apartments. The supply and demand of the upper end of the market may hit equilibrium this year in some submarkets.
  5. The commercial real estate market will continue being a seller's market with limited supply of properties for sale causing a further compression of cap rates.  

Assuming these five predictions are true, how should those of us in commercial real estate respond? This scenario of one more good year before things begin to turn reminds me of the story of the ant and the grasshopper. The ant prepared for winter during the summer months while the grasshopper relaxed and enjoyed himself. Do you have an “ant” or a “grasshopper” perspective?

I think those of us in commercial real estate, both real estate professionals and investors, need to avoid the dangers of groupthink. Yes, it has been a wonderful ride these past few years. Investors in commercial real estate have made a lot of money since the Great Recession.

But the lemming mentality, “This time is different” is really dangerous. I’ve been told that successful poker players when they’re winning put aside their original stake and then only bet on “house money.” If their luck eventually takes a turn for the worse, they can still walk away from the table without having lost a dime.

That should also be the mentality of those of us in commercial real estate. We need to understand that this phase in the real estate cycle at some point in time is going to come to an end. It’s not a matter of if it will happen, it is only a matter of when. And when it does, we should not be caught with our pants down. On the contrary, we should be preparing ourselves to hunker down for one or possibly two years until the market changes again.

So specifically how do we prepare for what is beyond the Silly-Stupid phase of the real estate cycle?

  1. Don’t buy properties that don’t make economic sense. If you have a game plan to turn a property around, fine. But if you’re buying a stabilized property with no real issues, don’t expect sharp rent increases to bail you out for buying overpriced properties. Because this time around, it might not happen.
  2. If you haven’t already taken advantage of low interest rates now is the time. But don’t overleverage your properties. Do whatever you can do to optimize your property’s cash flow.
  3. Now is the time to be accumulating a rainy day fund. If you’re an investor who is planning to refinance a property, take some of the cash proceeds and put it in the bank. And I mean the bank or money market fund, not the stock market. The equity market is poised for a substantial sell off this year. If you’re a real estate professional whose compensation is based on commissions, now is the time to sock away some of those lucrative commissions you’ve earned instead of spending it on the next expensive man toy.  How much should you save? At the very least it should be the equivalent of one year’s worth of personal expenses, probably more.

Forewarned is forearmed. Consider yourself warned.

Need financing?  E-mail me today for a free, no-obligation loan quote at doug@marshallcf.com.

Sources: What 2016 Might Bring by Tim Duy, Seeking Alpha, November 5, 2015; A Half Dozen 2016 Stock Market Poisons by Tony Sagami, Connecting the Dots, Mauldin Economics, December 29, 2015; Recognizing the Dangers of Groupthink by Daniel Goleman, December 28, 2015.

What do YOU think? Click the link below to share your experiences or advice on this topic.


Share This Post