Thoughts on the Drivers Affecting Capital

Fall has arrived and with it comes a series of industry functions where many people in commercial real estate finance come together to kick around a few ideas and share view points about their corners of the industry. I was recently at events for CRE Finance Council and the Real Estate Roundtable and I’m off to attend the Urban Land Institute fall meeting. I wanted to share with you some of my observations on what I’m hearing.
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How Do You Take Your Morning Hotel?

Ask four colleagues how they take their morning coffee and you are likely to receive four varying responses; loads of sugar, black, splash of cream or packet of artificial sweetener might be some replies. Such is the case with hospitality lenders – each has specific likes and dislikes when it comes to financing the right hospitality project
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CMBS Pricing Coaxes Investors

Earlier this month, the Dow Jones newswire reported that Deutsche Bank and UBS offered a $1.4 billion in CMBS for the first time since the market's recovery from the financial crisis. The deal offered investors 30% in credit protection, nearly double the levels in their June multi-loan offering and it was the first 2.0 era deal to include a publicly registered portion.
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Life Insurance Company Lending

Life insurance companies are back. Beginning in the second quarter of 2010, life insurance companies slowly re-emerged as an important source of debt capital for commercial real estate. During the last halcyon year of 2007, the CMBS market produced over $230 billion of capital compared to $40 billion for the life insurance industry. Presently, life insurers account for 22 percent of the $2.4 trillion of total outstanding commercial real estate debt.
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State of the Capital Markets for 2011

At the beginning of the month, over 3,000 professionals from capital providers and mortgage banking firms descended on San Diego for the annual MBA-CREF convention. Guarded optimism prevailed with most people believing that the worst is behind us, values have bottomed and have started to recover, abundant capital exists for the “right deals” and interest rates are on the rise.
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Deleveraging

Commercial real estate property owners continue to face situations where the current appraised value of their investment is less than the total amount owed in financing. When that financing consists of CMBS structured debt, trying to find a way out can be complicated and every situation poses its own challenges. Despite the loss of equity, some owners will attempt to carry the property with additional cash out of pocket, but this strategy often only provides additional time before needing to make more difficult decisions.
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Financing Notes

Our newest edition of Financing Notes is now available. Jack M. Cohen discusses: The ongoing capital distribution problem The availability of capital for trophy real estate and dearth of capital for everyone else Jobs! What effect they have on CRE The lasting impact of this economic cycle on CRE Political risk Surgery anyone? Who will be the first to take the remaining losses needed for everyone to move forward?
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Where to Find The Hot Deals In The New Year

Look for smaller, lower quality assets that need value add. This is where the bargains will be because for the last two and a half years or so the majority of the assets that have traded hands other than distressed loan portfolios were core stabilized assets with relatively no risk. Other than the obvious lack of available financing, investors are still uncomfortable with value-added assets because they feel that some of those properties haven’t adjusted to the current pricing and they are not sure when things will stabilize.
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What is Causing Banks to Fail?

On most Friday afternoons it is common to read about more banks getting taken over by the FDIC and subsequently absorbed by a stronger bank or held in receivership. With a total of 149 banks closed by regulators year to date, an average of approximately three banks have been closed every week. In 2010 alone, 28 banks in Florida have closed, 18 in Georgia, 16 in Illinois and 11 in Washington. The problems that plague these bad banks are deteriorating market conditions, the banks’ lending practices, and/or capital investment decisions. Loans on their balance sheets have become increasingly stressed as the value of underlying collateral diminishes and property level cash flows have fallen short of expectations.
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Are Financiers Ready to Open Their Wallets Again?

You would be hard pressed to find anyone in the commercial real estate industry today that wouldn’t admit that the industry has changed dramatically from the business environment of just a few years ago. But now that the recession has ended, and the industry is on the long road to recover, many still wonder when or even if capital will flow to the industry or if the “pretend and extend” viewpoint will persist.
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