CPN - December 2008 - (Page 20)

FINANCE INDUSTRY PULSE Silver Lining Troubled Market Positions Loan Servicers for Opportunity By Eugene Gilligan orrowers may be having trouble refinancing 10-year loans that are maturing, and loan originations may have dropped sharply, but the troubled commercial real estate market opens the door for some loan servicers to step to the front of the line. “What is happening in loan servicing is obviously a reflection of the credit market crunch,” said Midland Loan Services Inc. executive vice president Stacey Berger.“CMBS borrowers are having greater difficulty in refinancing maturing loans, but most seem to accomplish payoffs. While extensions and defaults are increasing, the percentages are still small and manageable.” Shorter-term loans are also exhibiting stress. “Short-term floating-rate loans have become more problematic than fixed-rate loans,” he said, explaining that the maturing fixed-rate loans were typically originated in 1998 and 1999 and were more conservatively underwritten. Berger added that they have been amortized down and the properties have appreciated. Grandbridge Real Estate Capital L.L.C. senior B “There is going to be a huge amount of distress and a real need for special servicing.” —Andrew Miller, Miller Frishman Group vice president & servicing co-manager Joseph have debt-service-coverage ratios that used to be Lovell reported a slowdown in payoffs for his 1.2 fall to zero.” So to serve that needy market,Miller Frishman firm’s $22.5 billion in loans.“We attribute (it) partially to borrowers experiencing greater difficul- and Johnson Capital in October formed Johnson ty making an exit from their existing loans,” he said. All this grief—high leverage levels in loans, plummeting property values and constricted credit markets—in “For properties that some cases translates into bad things happening to good companies. And we believe can execute there lies the opportunity for stable the business plan, we loan servicing companies to develop set a reasonable time solutions to serve worthy borrowers. frame and extend the Hudson Realty Capital L.L.C. director Heather Mutterperl,who services a loan accordingly.” portfolio of loans originated by her —Heather Mutterperl, Hudson Realty Capital L.L.C. company, considers extensions for worthy borrowers that are having trouble selling Capital Special Servicing to advise lenders of all or refinancing their properties.“Hudson reviews types of loans. It will also offer property manageeach investment individually, and for properties ment and leasing services. In addition to all the trouble the economy is that we believe can execute the business plan, we set a reasonable time frame and extend the having with existing loans, the decline in new originations may force some loan servicers to loan accordingly,” she said. Grandbridge is also making the exception the exit the business. And that would create opporrule when possible.“We have seen a slight uptick tunities for larger servicing companies to step in. in borrower requests for temporary relief,such as Smaller banks may want to sell their servicing operations, for example, Berger noted. Loan servgoing interest only for a short period or extenicing consolidation may follow the recent mergsion requests,” said senior vice president & head ers among major banks, as well. In the cases of of asset management Russell Richardson. Special servicing offerings are also needed JPMorgan Chase & Co.’s purchase of Washington Mutual and Wells Fargo & Co.’s acquisition of now more than ever.“There is going to be a huge Wachovia, for example, each entity operates a amount of distress and a real need for special servicing,” said Andrew Miller, principal of Miller loan servicing line. —Reach senior editor Eugene Gilligan Frishman Group, an advisory, property manageat eugene.gilligan@nielsen.com. ment and brokerage firm. Falling property values and ebbing property-level income have caused Visit www.cpnonline.com/finance for more coverage of commercial real estate finance. loans to go out of balance, he said. “Loans that (delinquencies in millions of dollars) $1800 $1600 $1400 $1200 $1000 $800 $600 $400 $200 $0 Lodging Retail Multi-Family Office Dec-2007 Mar-2008 Jun-2008 Aug-2008 Sep-2008 CMBS REALITY CHECK It’s All Uphill All commercial property types experienced increased delinquencies in September. Lodging delinquencies moved higher but remain at low levels. But could the sector’s current state be the calm before the storm? Retail delinquencies continued their climb to $803.8 million after stalling in August. As consumers rattled by the credit crisis and loss of confidence trim their spending, retailers will have an increasingly difficult time luring shoppers in. As they close stores at a rapid pace, leading to dark spaces and decreased foot traffic, retail centers are likely to be under operating pressure, which will ultimately translate into higher retail delinquencies. Source: Standard & Poor’s www.standardandpoors.com • Larry Kay • 212-438-2504 20 COMMERCIAL PROPERTY NEWS • December 2008 • www.cpnonline.com http://www.cpnonline.com/finance http://www.standardpoors.com http://www.cpnonline.com

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CPN - December 2008 Contents Starting Line Retail Data/Analysis Conferences Boston Market Profile Finance International Property Management

CPN - December 2008

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