Posts Tagged ‘commercial lending’

CMBS Poised for a Comeback

Wednesday, February 19th, 2014

CMBS was a $230 billion industry prior to the recession. Today, we live in an era of lowered expectations where every victory needs celebrating as we get back into gear. Take Chicago, where lenders originated and sold off $2.48 billion in loans on Chicago-area properties last year, more than double the $1.20 billion in 2012, according to Trepp LLC, a New York-based research firm. Nationally, CMBS lending rose 85 percent last year, to $82.23 billion. So, we are 35% of the way back. A big part of this rebound is that lenders have eased rates and LTVs. Last year, the average U.S. CMBS loan equaled 63.6 percent of the property’s value, up from 59.8 percent in 2007, according to Trepp.

Another signal of the rebounding bond market is that troubled loans have been getting worked out and traded. First, CWCapital Asset Management LLC put properties with $2.57 billion of unpaid loan balances up for sale. Now, Blackstone Group LP (BX), Starwood Capital Group LLC and CIM Group are all following suit. About 700 bidders registered interest in the auction, which includes foreclosed loans, according to Morgan Stanley. What’s happening is that special servicers, seeing the surge in property values, are unwinding holdings from the real-estate collapse. According to Green Street Advisors Inc., commercial property prices have rallied 71 percent from their 2009 low, surpassing 2007 highs in some areas.

Looking ahead, many experts predict that U.S. CMBS lending will top $100 billion this year. The Chicago area could surpass $3 billion in 2014.

Investment Banking in an Economic Meltdown

Thursday, June 25th, 2009

Investment banks are hunkering down locked_up_moneyto preserve capital, primarily because there are grave concerns about current property valuations, says Charles Krawitz, Senior Loan Sales Asset Manager, Fifth Third Bank, in an interview for The Alter Group podcasts on real estate.  Banks are reluctant to lend $10 million to a property that might be worth only $8 million, and with good reason.  Multifamily housing currently is the least distressed asset class, thanks to Fannie Mae, Freddie Mac and FHA financing that is creating a market for loans on these properties.

Distressed assets fall into three tranches – buildings, loans and securities.  According to Charles, if a property is struggling and the cash flow is impaired, there is a commercial lending problem.  In a CMBS structure, the loan has been sliced and diced so many times that it’s likely to be toxic and beyond restructuring.  Fully 1.8 percent of commercial loans cannot be restructured, and $400 billion in loans are rolling over this year alone.  The challenge is to pin down values in a distressed market when there are no comparable sales statistics.

One smart thing that the government has done is expand loans to small businesses through the Small Business Association (SBA).  With interest rates so low, this is very beneficial to small businesses, Charles notes.  Capital is once again flowing – though not in a tsunami – but that’s very good news.  The government will be an equity partner, and it’s likely that certain approved vendors will be part of this program.  A lot of questions remain, but it’s a very strong effort on the government’s part.

To listen to Charles Krawitz’s entire interview on the state of investment banking, click here for the podcast.