There has been some major buzz the past 3 months in the Commercial Lending sector that debt is AVAILABLE. We have attended a few different seminars in 2010 listening to panels and panels of lenders talk about the amount of capital that they need to deploy here in 2010.
The questions is: Where are lenders lending, on what deals and where. We know that debt is not easy to come by even if the lenders are advertising.
So what do you do if you are a asset seeking debt that is coming due?
The answer is:
-National Lenders are Lending on 50% or less LTV at current or forecasted values on full recourse, Class A assets with a strong and liquid borrower.
-Small balance lenders are truly the only game in town for owner/users. SBA only.
-Life companies are lending in the 6 3/4-8% range on “Their Value” for A-Tier borrowers, in major metropolitan areas. Recourse is on the menu for most of the active funds. The Life companies have billions that HAS to be deployed this year.
-Large Balance Lenders, CMBS like JP Morgan, Deutsche Bank, Goldman are all gently placing their toes in the water but closing a limited amount of deals. Minimum Loan is 10+MM and rates are between 7-7.5%. Non-Recourse and 60-65% LTV on cash flow vs. value based lending. Sound Good? Good luck obtaining one of these loans.
Here in lays the overall global problem, for example, you own a asset purchased after 2004 and financed the asset on a 3-5 year deal like most of the loans coming due in 2010-2013. Your asset is receiving a stable cash flow, you might have the asset occupied and you might be vacant. Now for the good part….your note is coming due and you make a few calls to brokers and your lender. After a few calls and a few packages sent out, you very quickly realize you are in DEEP and unless you want or can do a Full Recourse deal you might be handing back the keys.
As mentioned above, lenders are being overly optimistic in telling us that they are lending however at the end of the day everyone isnt a A-Tier borrower with more capital liquid than the note coming due, 100% leased building, obtaining rents that are higher than 2004 and a strong relationship with your lender.
In summary, Lenders have not started lending. While there is an extremely large amount of capital on the sidelines, don’t expect it to come to play until late 2010-2011. Everyone is waiting to see what everyone else is going to do and unless you are a life company cherry picking deals don’t expect a term sheet.Hold on because this ride is far from half over. Resign the tenants you can and start contacting your special servicer early.
Best of Luck, we are all going to need it.