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Jones Lang LaSalle Examines Lenders’ Production Expectations in Annual Survey at MBA Conference
Loan production between $2 and 4 billion expected to double from previous year in 2010
 LAS VEGAS, NV – The tide appears to have turned for commercial real estate lending as an increasing number of lenders predict loan production will increase this year, according to findings from Jones Lang LaSalle’s annual 2010 Lenders’ Production Expectations Survey. Forty-three percent of respondents expect their loan production to range from $2 to $4 billion in 2010—a number that is more than double the rate that lenders surveyed reported sourcing in 2009 (at 21 percent.) Showing even more future optimism, nearly 70 percent of respondents say their loan production will ramp up to $2 to 4 billion in 2011. In another encouraging metric, the number of lenders that expect to lend more than $4 billion jumped up 6 percent from 9.3 percent in 2009 to 15.2 percent in 2010.
Jones Lang LaSalle’s survey — administered directly to 60 nationwide lenders through a face to face questionnaire — included a mix of insurance companies, commercial mortgage-backed securities dealers, private equity lenders, commercial banks and government agencies. It was conducted over several days during the recent Mortgage Bankers Association’s Commercial Real Estate Finance/Multifamily Housing Convention and Expo in Las Vegas, Nevada.
“Lenders we spoke with say they’ll be giving borrowers 24+ month extensions in order to avoid foreclosure on high quality, well-located assets,” said Bart Steinfeld, Jones Lang LaSalle’s Managing Director of the real estate investment banking practice. “With more than $1 trillion worth of commercial real estate loans expected to mature between now and 2013, it’s no surprise that a majority of borrowers are placing significant importance on restructuring those loans. However, many financial institutions don’t want to hold on to assets and now are coming to terms with the fact that they can no longer ‘extend and pretend’. They’re now realizing it makes good sense to move these assets off their balance sheets to create greater ability to originate loans this year.”
The number of lenders willing to lend greater sums toward single-asset acquisitions is also shifting. In 2009, the majority of respondents indicated they would lend only $10 to 25 million on a single asset acquisition. In 2010, the greatest percentage of respondents was split evenly at 28 percent each among those willing to lend $50 to $100 million and $100+ million (hence 56 percent will lend $50 million and more for single-asset purchases). In 2011, the number of lenders willing to lend $50 to 100+ million rises by 8 percent to 64 percent of respondents.
Approaching maturities will continue to share the stage in 2010, with more than 67 percent of life company respondents acknowledging 40 to 60 percent of their portfolios will be allocated to the refinancing of maturing loans.
While liquidity within the capital markets is expected to turn from a trickle to a slow-but-steady flow in 2010, borrowers can expect the same tightened underwriting standards they experienced from life company lenders in 2009. Loan to value ratios in 2010 will fall predominantly in the 50 to 70 percent range, according to more than 74 percent of life company respondents, and that number is expected to remain steady in 2011.
As for new conventional commercial real estate loans in 2010, 59 percent say most loan terms will range five years or greater, with an additional 28 percent indicating a preference for three to five year terms.
When asked about average debt coverage ratios or debt yields they are quoting, industry participants expressed a wide range of opinions. A representative sample reveals the following offerings for each lending sector (not every respondent actively lends to each industry sector, thus responses vary):
- Life companies: One respondent advised that debt coverage ratios would range from 2.25 for hotels, 1.30 for multifamily, 1.40 for office, 1.60 for retail, 1.50 for industrial.
- CMBS: One respondent advised debt coverage ratios will range from 1.35 for hotel, 1.25 for office, 1.20-1.25 for retail, and 1.20 to 1.25 for industrial.
- Banks: One respondent advised debt coverage ratios will range from 1.35 for multifamily, 1.50 for office, 1.50 for retail, and 1.50 for mixed-use .
- Private Equity: One respondent advised debt coverage ratios will range from 1.15 for multifamily, 1.20 for office, 1.20 for retail, 1.30 for industrial and 1.30 for mixed-use. They’re also underwriting debt yields across the sector between 10 and 12 percent.
As for the sectors that lenders would most prefer to lend, a majority of respondents (27 percent) say they’ll single out multifamily for their loan dollars, while another 21 percent say they’ll focus on the office sector in 2010. While the hotel sector stands out as the sector to which lenders are least likely to lend, a select number of lenders indicated an interest in hotel investments given their belief that the sector is at bottom. The numbers don’t appear to change much for 2011, as 25 percent of respondents say they plan to reserve a majority of their lending dollars for the multifamily sector, with 21 percent putting their money into the office sector.
A number of lenders have indicated an interest in bridge loans for speculative development projects while yields are still high and spreads are compressing on the best projects. Thirty percent of respondents say they have already begun or plan to begin lending on speculative projects in 2010. Although the greatest percentage, 23 percent, stated the risk won’t be worth the reward until year-end 2012. One life company and one commercial bank respondent noted that each would never lend on speculative developments again.
A modicum of securitized lending has returned to the market with the issuance of nearly $1 billion in Commercial Mortgage-Backed Securities (CMBS) in 2009. While 2009 issuance was limited to single-borrower deals, the extreme over-subscription has led to an interest in multiple borrower pools. Forty-eight percent of respondents say they expect CMBS issuance to range from $0 to $10 billion in 2010, while 27 percent predict production of $10 to $20 billion and an additional 21 percent with $20 to $30 billion expectations. In 2011, the greatest number of respondents (38 percent) expect CMBS issuance to land between $20 to $30 billion.
There is a significant increase in the number of lenders who are selling performing and non-performing loans. In addition, these lenders are prepared to accept significant discounts in 2010 to create liquidity and to rid themselves of these non-core or problem assets. For performing loans, 29 percent of respondents indicated they are selling performing notes at 0.90 cents on the dollar and another 24 percent are selling performing loans between 0.70 cents and 0.80 cents on the dollar.
“There is also increased interest in selling sub-performing, or “scratch and dent” loans,” said Noble Carpenter, managing director of Jones Lang LaSalle’s real estate investment banking practice. “Depending on the remaining term, interest rate, property type and market, over 45 percent of survey respondents indicated a willingness to sell these loans below 0.60 cents on the dollar.
Many lenders have started or are considering asset, REO and loan sales. “We’re definitely seeing the bid ask spread between buyer and seller narrow, and in many cases reach equilibrium. That alignment should be the impetus many lenders need to bring large and small balance loans and REO to market,” added Wes Boatwright, managing director of Jones Lang LaSalle’s real estate investment banking team. “One innovative distribution method financial institutions are now seriously considering and using to sell small balance notes and REO is an online auction. Our auction platform provides sellers with efficiency, transparency and pricing discovery which will help facilitate an increasing number of sales given financial institutions have limited time and human resources to work them out themselves.”
MBA Analysis: GSEs Increase Multifamily Mortgage Holdings; Banks Decrease Construction Loans and Increase Commercial/Multifamily Mortgages in Third Quarter 2009
 WASHINGTON, DC - The level of commercial/multifamily mortgage debt outstanding decreased in the third quarter, to $3.43 trillion, according to the Mortgage Bankers Association (MBA) analysis of the Federal Reserve Board Flow of Funds data.
The $3.43 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve was a decrease of $28 billion or 0.8 percent from the second quarter 2009. Multifamily mortgage debt outstanding dropped to $912 billion, a decrease of $1 billion or 0.1 percent from second quarter.
“Given its longer-term nature, the amount of commercial and multifamily mortgages outstanding has remained relatively stable through the credit crunch and recession,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “The top line numbers from the Fed show a 0.8 percent decline in commercial and multifamily mortgage debt outstanding during the third quarter, led by a $20 billion drop in the holdings of banks and thrifts. Excluding construction loans, however, banks and thrifts saw a $6 billion increase in their holdings of loans backed by commercial and multifamily properties. Coupled with increases in the holdings of multifamily mortgages by Fannie Mae and Freddie Mac, and decreases in the balances backing commercial mortgage-backed securities, the overall amount of mortgage debt outstanding backed by commercial/multifamily properties remained relatively unchanged.”
The Federal Reserve Flow of Funds data summarizes the holding of loans or, if the loans are securitized, the form of the security. For example, many life insurance companies invest both in whole loans for which they hold the mortgage note (included under Life Insurance Companies in this data) and in CMBS, collateralized debt obligations (CDOs) and other asset backed securities (ABS) for which the security issuers and trustees hold the note.
Commercial banks continue to hold the largest share of commercial/multifamily mortgages, $1.53 trillion, or 45 percent of the total. Many of the commercial mortgage loans reported by commercial banks however, are actually "commercial and industrial" loans to which a piece of commercial property has been pledged as collateral. An MBA Research PolicyNote found that among the top 10 commercial real estate bank lenders, 48 percent of their aggregate balance of commercial (non-multifamily) real estate loans were related to owner-occupied properties. (Note: It is the borrower's business income, not the income derived from the property's rents and leases, which drive the underwriting, pricing and performance of these loans.)
Since the other loans reported here are generally income property loans, meaning that the income primarily comes from rents, the commercial bank numbers are not comparable.
CMBS, CDO and other ABS issuers are the second largest holders of commercial/multifamily mortgages, holding $709 billion, or 21 percent of the total. Life insurance companies hold $310 billion, or 9 percent of the total, and savings institutions hold $190 billion, or 6 percent of the total. The GSEs, agency-backed mortgage pools and GSE-backed mortgage pools, including Fannie Mae, Freddie Mac and Ginnie Mae, hold $197 billion in multifamily loans that support the mortgage-backed securities they issued and an additional $162 billion in "whole" loans in their own portfolios. This represents a total share of 10 percent of outstanding commercial/multifamily mortgages. As noted above, many life insurance companies, banks and the GSEs purchase and hold a large number of CMBS, CDO and other ABS issues. These loans appear in the CMBS, CDO and other ABS category previously referenced.
Multifamily Mortgage Debt Outstanding
Looking just at multifamily mortgages, the GSEs and Ginnie Mae hold the largest share of multifamily mortgages, with $197 billion in federally related mortgage pools and $162 billion in their own portfolios or 39 percent of the total multifamily debt outstanding. They are followed by commercial banks with $217 billion, or 24 percent of the total. CMBS, CDO and other ABS issuers hold $110 billion, or 12 percent of the total; state and local governments with $66 billion, or 7 percent of the total; savings institutions with $64 billion, or 7 percent of the total; and life insurance companies with $50 billion, or 6 percent of the total.
Changes In Commercial/Multifamily Mortgage Debt outstanding
In the third quarter of 2009, commercial banks saw the largest decrease in dollar terms in their holdings of commercial/multifamily mortgage debt – a decrease of $15 billion or 1 percent. CMBS, CDO, and other ABS issues decreased their holdings of commercial/multifamily mortgages by $10 billion or 1.3 percent. Savings institutions decreased their holdings of commercial/multifamily mortgages by $5 billion or 2.3 percent. REITs decreased their holdings of commercial/multifamily mortgages by $4 billion or 12 percent. As mentioned earlier, the decline in bank and thrift holdings was driven by a drop in construction loans, many of them for the development of single-family homes.
In percentage terms, nonfinancial corporate business saw the largest decrease in their holdings of commercial/multifamily mortgages, a drop of 37 percent. REITS saw their holdings decrease by 12 percent.
Changes In Multifamily Mortgage Debt outstanding
The $1 billion decrease in multifamily mortgage debt outstanding between the second quarter and third quarter 2009 represents a 0.1 percent decrease. In dollar terms, savings institutions saw the largest decrease in their holdings of multifamily mortgage debt, a decrease of $2 billion, or 4 percent. REITS decreased their holdings of multifamily mortgage debt by $1 billion, or 41 percent. Nonfarm noncorporate business decreased by $465 million, or 3 percent. Government-sponsored enterprises saw the biggest increase in their holdings of multifamily mortgage debt by $3 billion or 2 percent.
In percentage terms, REITs recorded the biggest decrease in their holdings of multifamily mortgages at 41 percent. Private pension funds saw the biggest increase of 9 percent.
NAR Tech Acquisition Will Create Propietary National Property Database
 WASHINGTON, DC – The National Association of Realtors® has acquired technology to create a proprietary database of all properties in the U.S.
The technology acquisition includes licensed data and secured data aggregation services from LPS Real Estate Group, a wholly owned subsidiary of Lender Processing Services Inc. (NYSE:LPS). NAR will use the assets to develop the Realtors® Property Resource™, a parcel-centric information database covering all of the more than 147 million property parcels in the country as a resource for NAR members. NAR is planning to launch RPR™ in the second quarter 2010.
“Realtors® are the first, best source for real estate information, and the RPR™ is another emphatic feature to that resource. RPR™ will give Realtors® nationwide data on all properties at their fingertips so they can respond quickly to consumers interested in residential and commercial real estate. This is exciting news and a terrific NAR member benefit. NAR is committed to keep Realtors® central to the transaction and to the buying and selling experience with their clients and customers,” said NAR President Charles McMillan, broker with Coldwell Banker Residential Real Estate in Dallas-Fort Worth.
NAR CEO Dale Stinton said, “These acquisitions will allow Realtor® interests to control the program and the content. Realtors® need to respond quickly to today’s tech-savvy consumers, and the RPR™ provides a means for multiple listing services (MLS), commercial information exchanges (CIEs) and real estate brokerage business models to support the Realtor® community, rather than requiring Realtors to purchase data aggregated by third parties.”
RPR™ is not a national MLS, and will carry no offers of cooperation and compensation, Stinton added. “It is a private, NAR members-only benefit. The assets acquired by NAR will be directed through a wholly owned subsidiary corporation, Realtors® Property Resource, LLC,” Stinton said.
The management team of RPR™ includes CEO Dale Ross, co-founder of the Metropolitan Regional Information System, the country’s largest regional MLS; President Marty Frame, former General Manager of Cyberhomes; Senior Vice President of Industry Relations Mona Steen, former SVP with Cyberhomes; and Jeff Young, NAR director of the Realtors® Property Resource™ and 2008 president of the Michigan Association of Realtors®.
RPR™ will provide nationwide access to public record information such as tax and assessment data, liens, zoning, permits, environmental information, and information on neighborhoods, school district and community demographics, along with advanced search features for property searchers, as well as market-to-market comparisons and referral opportunities not currently available.
“We’re honored to have been selected by the National Association of Realtors® to provide technology, data and other services for the RPR™,” said Jay Gaskill, president, LPS Real Estate Group. “Being involved with such a transformational industry initiative serves as an endorsement for our company and the premier products and services we provide to MLSs and associations, brokers, franchisors and sales associates.”
RPR™ will develop business strategies to make it affordable and feasible for NAR members, and will complement, not compete with, MLSs and CIEs. While many MLS and CIE systems provide a range of services, no two are alike. Brokers are looking for tools that support their agents across multiple markets with similar service levels and access to robust and valuable data. RPR™ is designed to support local MLS and CIE models to create a common experience for agents and brokerages.
RPR™ will have many partners, including the California Association of Realtors® and the Florida Association of Realtors®, offering a number of technology applications which will be incorporated within the RPR™.
“The California Association of Realtors® believes the RPR™ project provides the significant opportunities of scale and reach necessary to serve our members future needs for many years to come. We are already working closely with the RPR™ team to incorporate additional functionality directly into the RPR™ system using Realtor®-owned zipLogix electronic forms as well as Relay transaction management and risk reduction software for members nationwide,” said Joel Singer, CAR CEO.
“The Florida Association of Realtors® and its 122,000 members are excited about the launch of Realtors® Property Resource™, which we believe will be a valuable addition to the toolkit for Realtor® business success. The Florida association and its business subsidiary also look forward to discussing potential partnerships to further enhance the value of RPR™ to Realtors® nationwide,” said John Fridlington, FAR EVP.
Apartment Market Conditions Steady; Sales Volume and Equity Financing Improve, According to NMHC Quarterly Survey
 WASHINGTON, DC – Apartment industry market conditions are little changed from three months ago, according to the National Multi Housing Council’s latest Quarterly Survey of Apartment Market Conditions. For the first time in the survey’s history, at least sixty percent of responses to each question indicated conditions were unchanged from the previous quarter.
“This quarter saw a continued uptick in sales volume and equity financing, which represent another step, albeit a small one, toward a more normal transactions market, after 2009 recorded the lowest number of transactions of the decade,” said NMHC Chief Economist Mark Obrinsky.
“The weakest performing index is the Market Tightness Index,” said Obrinsky, “underscoring the fact that full recovery of occupancy and rents will require job growth to return to the economy. When that happens, and as a large wave of Echo Boomers begins to enter a supply-constrained market, we should see above average rent growth.”
Key Findings:
- For the second consecutive quarter, the Sales Volume Index reading was above 50. This index was 56 in January, indicating that sales volume around the country is increasing. (For all four indexes, a reading above 50 indicates that, on balance, conditions are improving; a reading below 50 indicates that market conditions are worsening; and a reading of 50 indicates that market conditions are unchanged.)
- The Equity Financing Index of 66 indicates that equity finance conditions continue to improve as well. One-third of respondents said equity financing was more available than three months earlier; this is the highest reading since April 2004.
- The Debt Financing Index was 49 for January 2010, indicating that conditions have changed very little from three months ago. While the apartment sector benefits from the mortgage programs of Fannie Mae and Freddie Mac, the CMBS market remains dormant and bank lending activity remains subdued.
- The Market Tightness Index’s sub-50 reading of 38 indicates that vacancy and/or rent conditions deteriorated over the last quarter. Thirty percent of respondents said markets were looser, meaning higher vacancies and/or lower rents; only seven percent reported that markets were tighter.
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