Thursday, November 13, 2008

Intervest Mortgage Reports Deals Continue Receiving Funding Despite Changing Market

by Mark Paskill, Intervest Mortgage

Lenders across the board have shifted toward lower risk tolerance resulting in lower leverage and cash equity critical to loan fundings. Lender focus today is on transaction risk with both tenant and borrower strength being looked over in more detail. The good new is that while spreads have increased, indexes have remained generally consistent and funding rates are still low by historical standards.

A wide range of loan appetites is occurring across our lenders. For many of the commercial banks we are seeing declining appetites driven by balance sheet concerns due to residential loan portfolios and overall pressure and guidance from the FDIC to pull back on real estate lending. Pre commercial mortgage backed security “relationship” lending is back in style as bank credit departments seek justifications to expand their portfolios. Construction lending has also tightened up significantly with little to no speculative lending occurring. For our life company lenders, we have been seeing a wide range of loan appetites depending on each companies remaining loan allocations for the year. Over the past month or so we have seen a number of life lenders pull back as their stock and bond sides have taken a beating in the stock and bond markets. With that said, Life companies are clearly the price leaders once again and in addition to their traditional 10 year fixed rates some are now offering 3 and 5 year fixed rate structures with flexible prepayment windows. Life companies are actively seeking to place loans on multifamily properties. The Commercial Mortgage Back Security (CMBS) market clearly has not recovered and is now not expected to reappear within the next few years. A number of loan pools with 2007 vintage loans sold earlier this year and numerous pools are still waiting in the wings with the hopes the secondary market will come back in the near future. We are also seeing a number of liquidation pools coming to market from failed companies such as Indymac Bank, etc. The only good CMBS news is loan delinquencies have so far remained low for commercial real estate.

For apartments financing the landscape has changed significantly. Over the past 5 years multifamily borrowers benefited from the wide range of lenders in the market which worked to dive down transaction costs (including free appraisals, etc) and higher loan to values appetites as lenders competed to place their funds. Over the past 12 months we have seen a large number of wholesale lenders close doors and exit the market including IndyMac Bank, Countywide Commercial, IMPAC and LaSalle. We don’t expect these types of lenders to return to the market for many years. We are currently seeing a number of national multifamily lenders such as Citibank and the former Washington Mutual (now Chase) going through significant internal changes. Following the exit of capital from the market we are seeing tightening underwriting, generally lower loan to value appetites and more traditional transaction cost structures.

INTERVEST continues to offer access to lenders who have capital to lend on solid, fundamental deals. Good pricing and terms continue to be available particularly with low leverage and/or well leased properties.

Mark Paskill can be reached at (503) 214-5082.