Browse Tag: lending

Anatomy Of A 90% LTV Office Deal

Logo der Fernsehserie Leverage

I think it’s fair to characterize the following transaction as a symbol of our current national office market boom. Gone, gone, gone are the days when lenders’ hands were tied and 30-40% minimum cash on the barrelhead was a necessity to get a deal done for an office building in a primary market. Today, leverage is back in a big way — at least in one such deal in Los Angeles reported by Globe St’s Kelsi Maree Borland.

In “Office Property Lands 90% LTV Financing”, we learn of a $21.6 million deal for an eight-story office building and parking garage financed with a mix of SBA 504 guarantee and very favorable underwriting from another lender at a rate of 200 basis points over treasuries at 90% leverage. The unnamed owner-user and their team at Sequoia Commercial Lending have put together a deal emblematic of a Los Angeles office market not only in recovery, but in bona fide expansion.

“Typically banks will only provide this type of leverage for SBA deals, therefore we approached the SBA about a 504 loan, and secured a pre-approval allowing for 85% leverage,” Christopher Farlow, a partner at Sequoia Commercial Lending, tells GlobeSt.com. “We then leveraged the SBA’s pre-approval with two banks, who were willing to provide more than 75% LTV on a conventional basis. Both of the banks have SBA divisions, so if they couldn’t do the deals conventionally at 85%, we still had the SBA 504 as a backup. Once the final underwriting was done, one of the lenders came back and asked what would win the deal. We requested 90% leverage, with a rate that was 2% over the 10-year UST, and a 0.00% loan fee from the bank. The bank agreed and allowed us to lock the rate without a deposit fee.” Farlow and his colleague Brett Twente, a partner at Sequoia Commercial, secured the financing on behalf of the borrower, and declined to name the lender for confidentiality purposes.

The loan has a 25-year amortization period with a step-down prepayment schedule. Farlow has worked with this lender in the past, and has seen them provide leverage has high as 85%; however, he was even surprised by their willingness to reach 90% leverage. When asked if leveraging a loan this high was dangerous, Farlow says, “Yes, there is obviously danger in providing this type of leverage. However, the borrowers provided personal guarantees. Their business is going to occupy the majority of the building, and the businesses are guarantors. The EBITDAR from the businesses covers the proposed debt service several times over and once the building is leased up, the value should increase by more than 25%.”

That said, deal principal and Sequoia partner Christopher Farlow caution that high leverage isn’t a trend across the capital markets, and that 90% LTV are more “one-off” deals.

It’s just that such deals seemed unthinkable not terribly long ago.

Read the entire Globe St. article here.

Commercial Real Estate Mortgage Lending In 2013: Capital Comeback?

Universal Life Insurance Company

New numbers from the Mortgage Bankers Association (MBA) tell a tale of heightened loan origination from commercial banks and life insurance companies to commercial property in 2012.  Will 2013 mark the return of pre-recession levels of capital to commercial property markets?

Commercial/Multifamily Mortgage Bankers Originations Index published by the MBA shows commercial banks produced their highest loan origination volumes since second quarter 2008.  Life insurance companies as a class “have origination volumes greater than before the recession while other lender types are still at below-recession levels” according to a National Real Estate Investor report.

[Many] market observers believe that both banks and life insurers will have closed 2012 with year-over-year increases in commercial/multifamily originations. A December report from Marcus & Millichap Real Estate Investment Services notes that portfolio lenders have been doing more commercial real estate transactions in 2012 than in 2011. Banks, including national, international and regional companies, accounted for roughly 25.5 percent of all commercial real estate loans closed last year, according to research by Marcus & Millichap and Real Capital Analytics, while life insurers were responsible for 18.1 percent of all loans.

When NREI spoke to Dave Clark, senior vice president of real estate with Northwestern Mutual last January, the Milwaukee, Wis.–based life insurer had a goal of increasing its commercial real estate originations by $500 million, to a total of $5 billion in 2012. The firm managed to close 2012 with nearly $5 billion in new transactions, Clark says.

“Our mortgage loan account has done wonderfully well through the downturn, with essentially no losses,” he says. “People are very happy with that performance. Combine [that] with interest rates that are low enough to be attractive to borrowers but are still higher than what you could get on corporate bonds, and I would speculate that life companies will continue to seek relative value in mortgages. This year, our origination goal would probably be 10 percent higher” than in 2012.

(Photo credit: Thomas Hawk)

 

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Latest NAR Commercial Podcast From Bill Armstrong

Picture of NAR Treasurer Bill Armstrong
Bill Armstrong, NAR Treasurer

The latest podcast on NAR Commercial Real Estate issues from Treasurer Bill Armstrong covers:

Market Improvement

The Commercial Real Estate 2Q Market Suvey shows market is stable and even improving in some areas of country.  The survey provides an overview of market performance, sales and rental transactions.

Top Obstacle: Lending VS. Recovery

REALTOR®s define financing as the biggest obstacle in the marketplace now, followed closely by pricing.  Despite these challenges, 7 in 10 commercial REALTORS® clsoed sales transactions during the second quarter.   Sales volume grew 12% from a year ago and leasing activity is up 4% from pervious quarter.
This dovetals with May’s CRE Lending Survey; 75% mentioned lending standards are as stringent as or more stringent than a year ago.  Adding to tight underwriting, down payment conditions also require hefty commitment; 72% of closed sales required a down payment above 20% to secure financing.

NAR Advocacy For Commercial Is Ongoing: FASB, Basel III, EB-5 Visas

Bill mentioned NAR is advocating for better lease accounting rules that will enable increased borrowing. NAR’s efforts have resulted in the FASB and IASB reexamining the potential economic outcomes of their proposed rule that would force many companies to capitalize commercial leases on to their balance sheets.

This month, NAR regulators to study potential impact on real estate of international capital and liquidity requirements for banks known as Basel III that require them to hold more capital back rather than making it available to lend.  While their goals are commendable, said Armstrong,  NAR supports efforts to ensure that Basel III foes not reduce liquidity.

This month, NAR joined a broader coalition of  of real estate organizations asking Congress to support legislation that would re-authorize the EB-5 Visa.  This provides visas to individuals overseas who invest in commercial enterprises and ceate jobs in targeted areas across the us.

NAR continues to push for legislation to increase liquidity in other ways. including raising the lending cap on credit unions.  Also by creating a covered bond market and supporting the extension of the SBA’s commercial refi loan program, set to expire on September 27.

NAR Code Of Ethics Training Due December 31st; Centennial of COE in ’13

Bill reminded us to not forget that 2012 is also the year to complete NAR Code Of Ethics training, which comes up every four years.  You have until December 31st to complete it. NAR’s COE is one of the things that truly sets REALTORS® apart from other real estate licesnsees.   Asked Bill: “How many of you have done your training? I have and it’s pretty painless.” You can do the training thru your local association or online at realtor.org.

2013 also marks Centennial of NAR’s Code Of Ethics. The celebration of the centennial will kick off at the NAR Annual Conference and Expo, Nov 9-12 in Orlando. The celebration will continue  through 2013.

Photo credit: MackintoshRealtors.Com

 

NAR’s Yun: Credit Unions Trying To Pick Up Commercial Credit Slack

NAR’s Chief Economist and Senior VP of Research Lawrence Yun notes the National Credit Union Association’s piece suggesting that credit unions are trying to pick up the slack left by our pinstriped friends the banks in the commercial credit market:

Commercial real estate loans are very difficult to obtain. The lack of government backing (outside of multifamily mortgages) and a higher capital charge on office, retail, industrial, and other commercial real estate-related mortgages have severely hindered credit flow and potential business deals. Moreover, the compliance costs related to the Dodd-Frank bill and the uncertainty regarding Basel III rules are said to be too burdensome for smaller independent community banks from lending on modest-sized loans. Large banks have enough legal staff to handle the compliance, but small banks do not.

A survey of REALTORS® who specialize in commercial real estate showed that many traditionally have relied on small local lenders. Furthermore, most deals were in the amount of less than $1 million. In other words, REALTORS® who specialize in commercial real estate were predominately helping local small businesses start a new business by getting that lease or purchasing a building. But with commercial credit barely flowing from traditional sources of small independent community banks, REALTORS® and clients were forced to turn to the big banks and the accompanying bureaucracy. The big banks, partly as a result, are getting bigger while smaller-sized banks are getting squeezed, which should not be viewed as a healthy development for competition and customer care.

But one recent sparkling spot among smaller-sized lenders is that credit unions have begun to provide more loans. NAR had actively pushed for raising the amount the credit unions would be permitted to lend on commercial real estate. The latest data from the National Credit Union Administration showed the total loan amount rising to $582 billion, at an annualized rate of 3.6 percent, the largest single quarter increase in four years. Given some anecdotal stories of commercial REALTOR® members having a better chance of securing a loan from credit unions, those who had been shut out from traditional lenders should at least inquire with credit unions.

 

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