Commercial Lending

MBA 2015 UPDATE San Diego was the site of this year's Commercial Real Estate Mortgage Bankers Conference. Over 4,000 attendees were at this year's conference representing mortgage bankers, commercial mortgage backed securities (CMBS) lenders, life insurance companies, agency lenders, banks, mezzanine, bridge lenders and preferred equity providers. NorthMarq Capital met with over 60 of these organizations during the three day event. These groups will shape the commercial real estate market for the next year. Each lender and preferred equity group indicated that 2015 will have increased allocations over the previous year and loan-to-value ratios will be rising conservatively. This year's conference focused on lenders trying to differentiate themselves in order to increase demand. OVERALL SENTIMENT Most lenders believe that the positive commercial real estate trends, which began in 2010, will continue in 2015. This optimistic sentiment is shared by most lenders who believe that 2015 will provide excellent real estate debt and equity opportunities. One of the concerns echoed last year, by many of our correspondent lenders was, "Is there enough demand for capital in the marketplace?" This year we can say, "Yes there is!" As cash continues to accumulate on most lenders' balance sheets, they are actively searching for yield opportunities. We don't believe this will result in a repeat of market peak behaviors; this will, however, lead to higher loan-to-values, creativity, a larger spectrum of loan opportunities and a greater number of loan products. The bottom line being that loan supply will increase in 2015 as interest rates remain near their historical lows. LENDER FEEDBACK Agency Lenders Last year, NorthMarq continued to rank highly with loans nationally with both Freddie Mac and Fannie Mae. NorthMarq finished the year as the fifth largest originator of Freddie Mac loans nationally. Together these agencies again led the marketplace for multifamily loans. These low cost, multifamily debt providers continue to be about 25-50 basis points less than most lenders on higher leverage transactions. There has been some leeway with loan-to-values for refinances, with cash out now available up to 80% on a per exception/waiver basis. Agencies will continue to be more aggressive on very low income housing opportunities. New for the Agencies this year will be earlier rate locks, lease up programs and additional "interest only" periods. CMBS CMBS lending continues to make a comeback as there are now more than 40 CMBS shops. CMBS lending surged in 2014 with most of the CMBS platforms seeking loan opportunities greater than $5 million. Loan-to-value remains in the 75% range, although they may go higher in certain situations and are open to mezzanine lending as part of the overall capital stack. CMBS lenders have loosened their requirements for soft or springing lock boxes, but reserves, warm body carve-out guarantors and single purpose bankruptcy remote entities are still mandatory. Life Companies Loan sizes range from $2 million up to $50 million for most institutional grade properties. Basic product types of apartments, retail, office and industrial continue to be what most life companies seek. Most life companies loan-to-values will max out at 75% for multifamily and 70% for other property types. However, NorthMarq is beginning to see several life insurance companies approaching 75% loan-to-values for property types other than multifamily. Five to fifteen year loan terms with some 20/20 self-amortizing loans are available. Several life companies are becoming more flexible with pre-payment penalties moving from yield maintenance to declining balance. In addition, we have seen several life companies enter the construction loan market for substantially pre-leased projects in excess of $10 million. Mezzanine & Bridge Lenders Mezzanine lenders and preferred equity groups continue to fill the loan-to-value gap in the shortfall created by the aggressive lending earlier in the decade. Average interest rates are in the 8 - 12% range, allowing loan-to-values to approach the 80 - 85% range. Bridge lenders continue to seek turnaround/distressed assets in the $5 million and up range. Depending on in-place cash-flows, loan to values will be in the 65 - 70% range. These non-recourse loans are totally driven by the markets the properties are located in and sponsor experience. Most loans are interest only for a two-three year period. In summary, expect the 2015 lending environment to be better and more liquid than last year. Most lenders are looking to expand their production but their staffs remain lean. Sam Berns, Managing Director NorthMarq's Upstate Regional Office, Rochester, NY, 585-262-2100, www.northmarq.com