Question of the Month: What is your perspective on commercial real estate lending after attending the 2012 MBA Conference?

MBA 2012 Update Atlanta was the site of this year's Commercial Real Estate Mortgage Bankers Conference. Over 3,000 attendees were at this year's conference representing Commercial Mortgage Backed Securities (CMBS) lenders, life insurance companies, agency lenders, banks, mezzanine and bridge lenders. NorthMarq Capital met with over 60 of these organizations. These groups will shape the commercial real estate market for the next year. Each lender indicated that 2012 will have increased allocations over 2011. The overall attitude was extremely positive and was best stated by one lending group that stated, "We know it's highly competitive out there and we hope that we have the tools to attract the best financing opportunities." Overall Sentiment This year's conference stands in stark contrast to the "doom and gloom" of years back. Buzz words like "cash flows," "income in place," "good news structure," characterized this year's conference. Most lenders believe that barring any catastrophic events, positive commercial real estate trends which began in 2010 and took hold in 2011 will continue in 2012. This optimistic sentiment was shared by most lenders who believe 2012 will provide excellent lending opportunities. 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, however, this will lead to higher loan to values, creativity, and a large spectrum of loan opportunities. The bottom line being that loan volumes will increase in 2012. Lender Feedback Agency Lenders: Last year NorthMarq placed over $3.2 billion in agency debt between Freddie Mac and Fannie Mae. Together these agencies contributed over $44 billion in 2011 for multifamily loans nationally. These low cost debt providers continue to be about 50 basis points less than most lenders and will lend up to 80% loan to value. We expect agency liquidity to remain strong as multifamily lending remains the bright spot under government conservatorship. CMBS: CMBS lending continues to make a comeback as CMBS 2.0. Over $40 billion was placed in CMBS and agency debt in 2011. Most of the 25 CMBS platforms are seeking loan opportunities greater than $5 million with rates ranging in the 4.75% to 5.5% range. Loan to values remain in the 70% range, however they may go higher in certain situations. CMBS lenders expect soft or springing lockboxes, reserves, warm body carve-outs guarantors and single purpose bankruptcy remote entities. Life Companies: Loan sizes range from $3 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 are seeking. Most life companies loan to values will max out at 75% for multifamily and 70% for other property types. 5-15 year loan terms with some 20/20 self-amortizing loans are available. Some life companies are becoming more flexible with pre-payment penalties moving from yield maintenance to declining balance. Mezzanine and Bridge Lenders: Mezzanine lenders continue to fill the gap in the shortfall created by the aggressive lending earlier in the decade. Figure rates to be in the 8% - 12% range allowing loan to values to approach the 80% to 85% range. Bridge lenders continue to seek turnaround/distressed assets in the $10 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 2012 lending environment to be better than last year. Most lenders are looking to expand their production but their staffs remain lean. NorthMarq offers commercial real estate services for investors, developers, corporations and tenants. The company provides mortgage banking and commercial loan servicing in 33 offices coast-to-coast, with an average of $8 billion in annual production volume and services a loan portfolio of $40 billion. For more information, please visit www.northmarq.com. Sam Berns and Ernie DesRochers are managing directors at NorthMarq Capital, New York, NY