Bank of America\u2019s purchase of Merrill Lynch and Lehman Brothers’ filing for bankruptcy protection this weekend is unlikely to thaw the year-old credit freeze-up that has plagued lending for commercial real estate. \u201cThis is bad news, of course,\u201d said Lawrence Longua, clinical associate professor at the Schack Institute of Real Estate at New York University. He said that the news adds another layer of uncertainty to the market. \u201cLehman\u2019s bankruptcy means that there will be $40 billion of real estate that they are going to be unloading. There are no buyers out there, there are only sellers.\u201d \u201cLehman provided equity, they provided debt, they provided mezzanine debt, they were in every part of the capital stack,\u201d said Eric Anton (pictured), executive managing director of Eastern Consolidated. Anton agreed that uncertainty is continuing to stunt transaction volume. There is a huge amount of equity waiting to be deployed from what Anton said could be 500 hedge funds. \u201cBut they\u2019ve promised their investors such high returns,\u201d Anton said. He said that a lack of debt is one obstacle to achieving those returns. \u201cAnd the days when you could buy a building, and sell it the next year for 30 percent more, are gone,\u201d he said. \u201cToday, you have to work for a living.\u201d He sees a continued move on the part of lenders to back-to-basics underwriting standards. \u201cThe focus will be on good sponsorship, good location,\u201d Anton said. Obtaining financing for construction projects will be the most challenging. \u201cThese are the riskiest projects, and they will be hurt.\u201d The weekend\u2019s developments will mean that sub-performing real estate loans and assets that may have been sold in one-off transactions will now likely be sold in more of an RTC-type auction, through a third party company or bankruptcy court, said Spencer Garfield, managing director of Hudson Realty Capital. He said that while this weekend may be seen as the trough five or 10 years from now, there is more bad news that will have to work its way through the system. Many regional banks will have to dispose of a significant number of troubled real estate assets, Garfield said. Some banks will have to close their doors, or be acquired, but the disposition of these assets will be required before these banks will start lending again. \u201cThen you\u2019ll see them dip their toe back in the water again, with lending terms that will be very conservative,\u201d Garfield said. A large engine of real estate finance, the CMBS market, is likely to remain sidelined for a while more, Longua said. \u201cI don\u2019t see an uptick in CMBS issuance for the next 12 to 18 months.\u201d Longua noted that securitization and a growing number of publicly traded REITS were supposed to bring greater transparency to commercial real estate, and thus smooth out the real estate cycles. But, in light of these latest developments, that tenet has not proved out, he said. Anton found some similarity to the Enron debacle. \u201cThat [Enron] was about corporate greed and theft,\u201d he said. \u201cI don\u2019t say there was theft. But lenders lost sensibility about basic underwriting standards.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
Bank of America\u2019s purchase of Merrill Lynch and Lehman Brothers’ filing for bankruptcy protection this weekend is unlikely to thaw the year-old credit freeze-up that has plagued lending for commercial real estate. \u201cThis is bad news, of course,\u201d said Lawrence Longua, clinical associate professor at the Schack Institute of Real Estate at New York University.…<\/p>\n","protected":false},"author":1314,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21742],"tags":[],"class_list":["post-1003849927","post","type-post","status-publish","format-standard","hentry","category-latest"],"acf":[],"yoast_head":"\n