CPN - September 2008 - (Page 18) FINANCE INDUSTRY PULSE CMBS REALITY CHECK Got Debt? Strong Borrowers Retain Edge in Tight Market By Paul Rosta arring any surprises, such as an overnight ®Most of all, experts say, borrowers should be receiving a pitch from a lender for a 15-year ready to bring plenty of equity to the deal.If any- amortization, a quote the borrower declined. rebirth of the securitization market, condithing, lenders, more so than just a couple of Although loans are being arranged in all proptions in the commercial real estate debt quarters ago, want to see customers with even erty sectors for acquisition and, to a lesser extent, market are almost sure to stay the same for at more skin in the game—as high as possible construction,a number of factors put prospective least the next couple of quarters. Some intermediaries, casting a wide net to find debt, even above the 30 percent loan-to-value ratio. All multi-family borrowers in a stronger position believe that many capital sources that still claim things being equal, a 30 percent equity stake today.As long as the single-family market stays in to be lending are just whistling in the dark to will most likely be enough to secure financing its slump, the investment value of both existing keep up their courage.“In reality,very few people from at least one source, according to Meridian and new condominium and apartment properties are lending. Everyone’s trying to will remain relatively live to fight another day,” declared strong, experts say. InterChanging Players George Smith Partners Inc. managmediaries reported a (acquisition financing sources) ing director David Rifkind. strong market for small 33% Undoubtedly, there are develand midsize multi-family Wall Street Firms 1% opers and investors continuing to loans, those valued at or 26% National Banks 8% secure debt, but the pace and below $25 million. Last 18% volume of transactions are far month, George Smith International Banks 15% reduced from the market’s 2006Partners disclosed that 9% Finance/Mortgage Companies to-2007 peak. Anyone making Steve Bram and Allison 5% 7% loans or looking for debt can recite Higgins recently arranged January 2006 to June 2007 Regional/Community Banks 5% the new, unwritten rules by heart: $22.3 million in acquisi6% Insurance Companies January to July 2008 tion financing for The ®Investment properties in any 7% 1% Cambridge,a 204-unit stusector should be stabilized, wellFannie Mae & Freddie Mac 5% dent housing project near tenanted and preferably located Debt Assumed by Buyer 0% The University of Texas at in a primary market. 50% Tyler. Terms for the five0% ®Developers should have a strong Seller-Financed Transactions 4% year, non-recourse loan track record and significant preinclude an interest rate of leasing and should preferably be 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% LIBOR plus 2.9 percent. working on sites situated in marSource: Real Capital Analytics Inc. At a time when conkets with high barriers to entry. Capital Group L.L.C. managing director David struction debt is notoriously tough to obtain, it is ®Because lenders hold the upper hand, borrowno surprise that the sponsors of a residential projers would do well to keep financing strategies Rosenberg.But a sponsor able to put up 50 perflexible. If standard first-mortgage debt proves cent of a loan’s value in cash will get the atten- ect also won the biggest construction loan in the to be unavailable, borrowers may still have . tion of multiple lenders. country this year. Holliday Fenoglio Fowler L.P other,though more expensive,options like preBorrowers can also expect lenders to push assembled a Deutsche Bank-led consortium to proferred equity or mezzanine debt, noted Cush- for stricter terms, such as amortization periods vide a $613 million loan for a 38-story condo/apartman & Wakefield Sonnenblick-Goldman L.L.C. that are considerably shorter than the standard ment tower and an adjacent 23-story apartment president Steven Kohn. 30 years. One intermediary even reported building on Manhattan’s Upper West Side. B Ups & Downs Office sector delinquencies increased more during the second quarter than delinquencies in other property types, rising 61 percent. The financial hubs of New York City, Chicago and San Francisco have not seen big increases, but demand for space is likely to drop in those markets, which could affect credit performance. Better news occurred in multi-family, in which delinquencies rose only 0.3 percent following sharp increases since December 2006. Resolutions more than doubled from the prior quarter, and new delinquencies declined by 31 percent. The sector, however, is not out of the woods, owing to excess rental supply from investor-owned condominiums and single-family homes. Source: Standard & Poor’s www.standardandpoors.com • Larry Kay • 212-438-2504 18 (amount delinquent by property type, $ in millions) $1800 $1600 $1400 $1200 $1000 $800 $600 $400 $200 $0 Lodging Retail Multi-Family Office Mar-2008 Sep-2007 Dec-2007 May-2008 Jun-2008 COMMERCIAL PROPERTY NEWS • September 2008 • www.cpnonline.com http://www.standardandpoors.com http://www.cpnonline.com
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