Recent Deal Closing

$3,700,000 Apartment Complex in Daytona Beach, Florida

We recently closed on this 148 unit apartment complex with Fannie Mae as the lender. The client had a loan coming due and needed to refinance and pull some additional cash to payoff another loan. The occupancy was only 85% and during the lender’s due diligence process, Fannie Mae made Florida a pre-screen state so that the maximum loan to value was 65%. The client wanted flexibility at the loan expiration so we did a 10 year loan where the rate is fixed for 9 years and the 10 year the rate floats but it is prepayable with no penalty.

Market Rate Watch

10 year treasury 12-17-08: 2.12%; 1 month ago 3.82%, 6 months ago, 3.98%; 1 year ago 3.97%
5 year treasury 12-17-08: 1.21%; 1 month ago 2.56%, 6 months ago, 3.26%; 1 year ago 3.35%

Wall Street: At this point it is likely that the Wall Street conduits will be gone for at least the next 12 to 24 months if they ever return at all. Well Fargo continues to be the only lender still willing to do conduit oriented deals with non-recourse. The underwriting criteria have become more stringent and their upper limit of loan to value is only 65% versus 75% 2 months ago. They are still doing 2, 3 or 5 year fixed rate deals. Today the rates range from the mid 5% range for the 2 year deal, the upper 5% range for the 3 year deal and the upper 6% range for the 5 year deal. I purposely do not list the spreads. It is best to just focus on the overall interest rate. The debt coverage requirement is 1.30 times and 30 year amortization is relatively standard. Wells also now offers a program that will fix the interest rate at loan application with a 1% deposit with no hedge risk whatsoever. The premium on the rate is about 40 basis points though. The other Wall Street lenders like NATIXIS and CIBC are continuing to focus on larger (in excess of $15MM) short term floating transactions. For 65% loans the spread over LIBOR ranges from 500 to 600 (mid to higher 8% range), For 75% the spread has ballooned to over 800 (mid 9% or higher).

Life companies are effectively out of the market through the end of 2008. More life companies are reporting that there may be cash flow issues for investment in 2009. With the dramatic decrease in the value of their stock portfolio the percentage of real estate has grown beyond the targeted allocation and therefore they will have less money for real estate investment. They may not even have enough money for renewals in their own portfolio.

Credit Tenant Lease Transactions got even worse since the last newsletter but have started to recover somewhat. The levels though are not nearly what they had been before. Walgreen’s deals can get done today at an overall rate of 7.9% for a fully amortizing 25 year loan (it is a hefty spread and no where near the spreads of 250 from 3 months ago). GSA deals are getting done in the mid 7% range for long term lease deals. The good news is that the underwriting has not changed. There is no loan to value constraint and the debt coverage can be as low as 1.0 times. GE Capital continues to be on the sideline.

FANNIE MAE AND FREDDIE MAC: Fannie Mae continues to be an active lender for multi-family product. Florida has been put on the Fannie pre-screen list which likely means maximum loan to value of 65% to 70% and debt coverage of 1.35 times. The overall spreads have increased in the past 60 days but the decrease in the US Treasuries mean that the 10 year rates are in the upper 5% to low 6% range. Freddie Mac is now only looking at deals $10MM and over.

Market Rate Watch

10 year treasury 10-15-08: 3.99%; 1 month ago 3.54%, 6 months ago, 3.67%; 1 year ago 4.57%

5 year treasury 10-15-08: 2.86%; 1 month ago 2.69%, 6 months ago, 2.79%; 1 year ago 4.23%

Wall Street: Wells Fargo remains the only lender looking at 75% loans. They will look at them on a 2, 3 or 5 year fixed rate basis. Today the rates range from 6.15% for the 2 year deal and 6.7% for the 5 year deal. The debt coverage requirement is 1.30 times and 30 year amortization is relatively standard. Wells has now financed over $1.2 Billion in their portfolio program. They are servicing all their own loans and the portfolio has minimal to zero delinquency. They are still not interested in hotels. The other Wall Street lenders like NATIXIS and CIBC are focusing on larger (in excess of $15MM) short term floating rate deals. For 65% loans the spread over LIBOR is about 375 (7.89% today), For 75% the spread is 4.25% (8.39% today).

Life company spreads continue to edge up and many are sitting on the sideline. More life companies have written off 2008 and are looking towards 2009 to start lending again. Spreads for the life companies have edged up to the 300 basis point spread range for loan terms anywhere from 4 years to 15 years. Longer terms are still available on a fully amortizing basis. Loan to values are still at a maximum of 65%. In addition deals generally need to be very vanilla and easy to understand. 10 year rates are close to 7% today.

Credit Tenant Lease Transactions have finally been impacted by the financial crisis. Interest rate spreads for Walgreen’s which were 270 in mid September have risen to over 370. In addition, GSA deals (US Givernment) which had been priced in the 215 range have risen to 325. This have effectively put the credit tenant lease lenders out of the market for now until the rescue plan works it way through the system. GE Capital is now officially on the sideline through the end of the year.

Agency Lenders: Freddie Mac is sitting on the sidelines at this point after the government rescue. Fannie Mae is still in business and quoting, approving and funding deals. Interest rate spreads are in the 270 to 280 range making the 10 year rates about 6.6%. Florida has been but on the Fannie Mae pre-screen list. So any DUS lender must get a pre-approval before sending out a loan application. That means tighter scrutiny and more conservative underwriting for Florida Multi-family deals.

Wells Fargo Raises Minimum Deal Size

Wells Fargo had been doing their portfolio program for deals as low as $3MM. They have now officially moved their minimum deal size for this program to $5MM.

Their current spread for a 3 year deal is 320 (that rate today is under 6%) and for a 5 year deal is 340 (6.50% today). They will go up to 75% loan to value with a 30 year amortization and of course this program is non-recourse.

The only option today for a non-recourse deal under $5MM is a life company. That means a loan to value of 65% at best and that is for the better quality deals. If the deal is not top quality then the life company will offer a lower LTV or will just pass.

National Cooperative Bank will do smaller deals (from $1MM to $15MM) but they want at least some level of recourse for a 75% loan to value. Their deal is a 9 year loan with a rate reset every 3 years at 250 over the 3 year treasury (but not less than 6.25%).

For Multi-Family deals Fannie Mae and Freddie Mac are still the best options. They can get to 75% and 80% loan to value. Florida has been put on Fannie Mae’s pre-screen list. Every loan application issued for a deal in Florida is now pre-screened by Fannie Mae.

MARKET RATE WATCH

10 year treasury 8-1-08: 3.95%; 1 month ago 4.00%, 6 months ago, 3.67%; 1 year ago 4.77%
5 year treasury 8-1-08: 3.24%; 1 month ago 3.32%, 6 months ago, 2.84%; 1 year ago 4.60%

Wall Street is back on the skids. Spreads for the long term (10 years) securitized loans are back to well over 400 basis points. That would make a 10 year rate today a whopping 8%. Wells Fargo continues to be the only player offering a fixed rate non-recourse 75% loan. Their spread for 5 year money is currently 350 (up from 325 in mid July) which puts the 5 year fixed interest rate right around 6.75%. They have been getting more attention lately on their 3 year fixed rate which has a lower spread of about 320, which makes the 3 year fixed rate today around 6% or a little under. Wells minimum loan size is $3MM but they prefer at least $5MM. No hotels.

Life company spreads have edged up as their allocations have been invested and markets started deteriorating again. Interest rates are in the higher 5% to lower 6% range for the shorter term loans (2 to 6 years) and to the mid 6% range for 10 year deals. Maximum leverage continues to be about 70% (effectively). Many life companies continue to remain on the sidelines and have told me that they are looking at 2009. Many life companies want to stay above $3MM but we do have a few clients that will do the $1MM and $2MM deals. Longer terms are available as well (15 to 25 years).

Credit Tenant Lease Transactions continue to be relatively stable. Walgreen’s credit has remained at a spread of 250 (over the interpolated 16 year rate). That makes the interest rate in the higher 6% range for a 25 year fully amortizing deal. Higher leverage (75% to 85%) is achievable for non-investment grade tenant deals through a division of GE. But their interest rates have increased back to the higher 7% range or they will do shorter term deals in the low 7% range.

ANOTHER FALSE START FOR LENDING MARKETS

After steady improvement and a return to some level of normalcy, the economic woes and soaring gas prices plunged the lending markets into chaos yet again. Spreads for long term loans had been under the 300 basis point spread range for 75% loan to value deals, and in the lower 200 basis point spread range for the lower-leverage life company deals. Spreads for these loans have bumped up 50 to 75 basis points since mid June.
But this time around there was another victim and that was Commercial Banks. Interest rate spreads for fixed rate loans had been in the 250 basis point range. These soared to 300 and in some cases well over, as capital preservation for banks sharply reduced stock prices, requiring a higher return on equity. Many commercial banks have simply retreated and are not making any new loans today.
At some point cooler heads will prevail. The commercial real estate markets are showing some weakness with rising vacancies in many sectors. There have also been some increases in loan delinquencies for commercial real estate loans, but they are still at historically low numbers (well less than 1%). With limited commercial real estate development over the past several years, most markets are in the best supply/demand conditions they have been in for 20+ years. Certainly far better than the late 80’s/early 90’s, which is the last time the markets saw interest rates spreads this high.

MARKET RATE WATCH

10 year treasury 6-3-08: 3.99%; 1 month ago 3.83% , 6 months ago, 3.97%; 1 year ago 4.90%

5 year treasury 6-3-08: 3.31%; 1 month ago 3.10%, 6 months ago, 3.35%; 1 year ago 4.86%

Wall Street is stabilizing. For the past 8 weeks the spreads for securitized loans have steadily reduced as pools are brought to market. This is the longest period of stability since the turmoil started a year ago. Column Financial has joined Wells Fargo in being able to offer 10 year deals at 300 basis point spreads. That is for a 75% LTV with a 1.25 debt coverage ratio. The spread can be lower (maybe 20-30 basis points) for a more conservative loan. Wells can also still do the 5 and 3 year deals also in the 300 basis point range which put the interest rate today in the lower 6% range. The minimum deal size is $3MM for Wells Fargo and $5MM for Column Financial. Hotels are still a problem for the securitized side.

Life Companies rates are still ranging in the mid 5% range for shorter term loans (2 to 6 years) to the low 6% range for 10 year deals. Maximum leverage continues to be about 70% (effectively). Some life companies continue to remain on the sidelines. Most life companies want to stay above $3MM but we do have a few clients that will do the $1MM and $2MM deals. Longer terms available as well (15 to 25 years).

Credit Tenant Lease Transactions have been stable for the past 90 days. Walgreen’s credit has remained at a spread of 250 (over the interpolated 16 year rate). That makes the interest rate in the mid 6% range for a 25 year fully amortizing deal. Higher leverage (75% to 85%) is achievable for non-investment grade tenant deals through a division of GE. The interest rate continues to be in the mid 7% range for these deals.

Multi-Family - FANNIE MAE is still the best choice for multi-family permanent loans. Spreads for 10 year deals are about 220 which put the rates today in the lower 6’s. Fannie Mae can also do 5 year deals at a spread in the 240 range (5.6% today). 80% loan to value is still available but coverage has increased slightly to 1.25 times. Fannie Mae will not consider a cap rate lower than 6.5% when calculating value. Supplemental fundings are key to these deals. You can build your LTV back up to 80% twice during the loan term AND if you sell the new buyer can get the loan back up to 80%. That basically eliminates the whole prepayment penalty risk.

$13,500,000 SINGLE TENANT CREDIT BRIDGE DEAL IN MIRAMAR, FLORIDA

BankAtlantic recently closed on a 5 year bridge deal for this client. They had a securitized deal fall apart due to the market volatility. We were able to quickly provide a fixed rate loan at a very competitive interest rate (in the mid 5% range) on this 81,000 square foot warehouse facility leased on a long term basis to a non-investment grade tenant. The deal included a 30 year amortization and the ability to expand the property by an additional 20,000 square feet. While the deal included personal recourse it also had a flexible FIXED prepayment payment penalty.

CONDUITS ARE STABILIZING – SPREADS ARE DOWN / RATES ARE UP

The past 60 days have seen steady improvement in the securitization market. However it has also seen the continued rise in the price of gas and the continued decrease in consumer sentiment. So the question from the lending side on both the recourse and non-recourse sides is how the continuing weak economy will affect commercial real estate. Will vacancies rise in all types of real estate and cause a significant increase in commercial real estate foreclosures?

The issue for the next few months then may be more of an underwriting question versus the availability of capital for permanent loans. At this point the delinquency on commercial real estate loans throughout the industry (life companies and securitized pools) is still at historical lows (but they have increased in the past 12 months).

Wells Fargo and Column Financial are both in the market for 10 year fixed rate non-recourse loans. Their spreads have dropped to about 300 over the 10 year treasury. That is down almost 300 basis points from just a couple months ago. There have been several securitized pools sell over that time and they have performed very well. Now that the pools with all the full term interest only deals and no reserves are gone, the new pools have more conservative underwriting. Wells also has 3 and 5 year money at the same 300 basis point spread.

Treasuries have run up about 50 basis points in the past month so the perm rates for 10 year deals are in the high 6’s to low 7’s. The Wells 5 year deal will be in the mid 6% range. If you can live with at least some level of recourse than the BankAtlantic bridge program can deliver a rate in the 5’s.

LENDER ALERT - 10 YEAR RATES AT 7% OR UNDER

Column Financial has lowered their spreads on their 10 year deals to 320 basis points. That puts their 10 year rate right around 7%.

The minimum loan size is $5MM and they want the better quality deals but they will go to 75% loan to value and will give the borrow a 30 year amortization.

The spreads until 6 weeks ago were over 500 basis points effectively putting all securitized lenders out of the market since no one would be interested in a 10 year fixed rate over 8%.

Column Financial is one of the oldest securitized lenders and they have been one of my most active and dependable lenders. You will recall there were a few times in the past 6 months when it seemed that the securitized market was recovering…only to disappointed when the market deteriorated again. But it has now been 6 weeks of steady progress and Column is confident they can deliver. But they also understand the reluctance of many borrowers. So they are offering a risk free deal. They will sign up a loan and if they do not deliver they will refund 100% of the deposit less the cost of the 3rd party reports. This works better on straight refinance deals versus acquisition deals.

This is a very positive sign for the market. Let’s just hope it is not the “boy who cried wolf” this time.

In addition, Wells Fargo told me that their 10 year spread has reduced to 300 basis points so their 10 year fixed rate for their portfolio program is UNDER 7%.

Please call me with any questions or deals,

Neil

Deal Spotlight: $9,000,000 Independent Living Facility in Delray Beach

BankAtlantic recently provided a redevelopment loan for this 196-unit independent living facility. This Class A facility with numerous amenities contained a total of 175,000 square foot and was built in 1988-89. The property was in good condition but the borrower wanted to complete some cosmetic improvements. The borrower had a plan in place to perform $2 million in renovations out of pocket. BankAtlantic refinanced the existing debt for a term of 5 years fixed which allowed for an interest only period for 12 months while the renovations were being completed. After the initial interest only period the loan was put on a 25 year amortization.

Permanent Loan Volatility Continues

There does not seem to be any end to the continued volatility with the permanent lending markets. Most of the Wall Street conduits are still basically shut down for any securitized business (except for Wells Fargo). The life insurance companies continue to cherry pick only the top deals in terms of leverage and quality. The interest rates from life companies vary depending on which one you are talking to.
Some life companies still have attractive interest rates in the low 6% range for 10 year fixed rate deals while others are in the higher 6% range or even over 7%. There are some life companies out of the market completely.
The options for a borrower looking for “normal” leverage (75%) AND non-recourse is severely limited. The life companies will be able to get to a 75% loan to value only for the highest quality and highest credit deals and only with the strongest and most experienced borrowers. For loans under $3MM, a 75% LTV will almost certainly come from a bank and have at least some level of personal recourse.
There have been 3 smaller issues of securitized pools so far this year totaling $5 billion. Each was relatively small and the B pieces were pre-sold to investors. So there is a market that is operating albeit at a much slower pace. In the most recent pool, the highest rated bonds were priced at a spread of over 300 basis points. As a comparison, at this point last year they were priced at a spread of only 30 basis points.

MARKET RATE WATCH

10 year treasury 4-16-08: 3.67%; 6 months ago, 4.57%; 1 year ago 4.69%

5 year treasury 4-16-08: 2.80%; 6 months ago, 4.23%; 1 year ago 4.60%

Wall Street Conduits are essentially out of business except for Well Fargo. While many conduits are trying to keep their loan production staff busy, Wells Fargo decided earlier this year to use their balance sheet for non-recourse permanent loans with 10, 5, and 3 year terms. They are limited to 75% loan to value. Their best rates today are about 6.70% for 10 years; 6% for 5 years; and about 5.5% for 3 year deals. They are not interested in hotels and their minimum deal size is $3MM.

Life Companies rates are ranging in the mid 5% range for shorter term loans to low 6% range for 10 year deals. Everything depends on the quality of the deal, and how conservative the underwriting is. There are a few life companies that are out of the market or have effectively put themselves out of the market by charging interest rates in the mid 7% range. Deal size is also a limitation. Many Life Companies want deals over $3MM and others higher than that. We do have lenders that will go as low as $1MM.

Credit Tenant Lease Transactions have stabilized somewhat in the past 30 days. A Walgreen’s deal today is in the lower 6% range (a spread of 250 over the interpolated 16 year rate) for a 25 year fully amortizing deal. Non-investment grade tenant deals can be done with Life Companies for lower leverage transactions. 75% to 85% loans are achievable with non-investment grade tenants but the rate will be in the mid to upper 7% range today. We have access to current tenant credit listings. Please feel free to contact us for this information.

Multi-Family - The agencies are the best choice for multi-family permanent loans. I recently quoted a 10 year deal where the fixed rate was just under 6% (a 250 bp spread). 80% loan to value is still available and 1.20 times debt coverage ratio. 5 year deals are also available at a coupon rate in the 5.5% range. Fannie Mae is scrutinizing cap rates that appraisers use and will likely not consider anything lower than 6.5% in today’s market. Don’t forget that they offer supplemental fundings which eliminates the prepayment risk. For deals under $3MM, the 3 MAX program offers fixed closing costs ($7,500) and limited documentation.

THINK RATE NOT SPREAD

For sanity sake, think about that great rate you are getting versus the all time high spreads. Rates in the upper 5’s to 6% are at the low end of the range for the past 20 years.

MARKET STABILITY REMAINS ELUSIVE

There was a brief moment in late October when the permanent market seemed to be stabilizing and interest rate spreads moved to below 200 basis points. Activity level picked up and the end of the volatility seemed at hand. There was another brief moment in late December / early January when spreads stabilized in the 250 range putting the overall interest rates in the 6.2% to 6.3% range. The recent stock market tumble combined with the news of a nationwide recession (Florida has probably been in a recession for the past 3 months) put the securitization market back on its heels. 10 year rates from the securitized lenders are in the 7% range today.

Even when the markets do finally stabilize it is clear that securitized lending has changed fundamentally. Underwriting will be stricter and profit requirements will increase. Commercial Banks will take an increasingly expanding role in the financing of stabilized commercial real estate. 5 year fixed rate deals with at least some level of personal recourse will become more prevalent.

As I recommended earlier in 2007, unless you have a lower leverage deal that might fit a life company portfolio….now might not be the time to fix an interest rate for 10 years. BankAtlantic can provide 5 year fixed rates in the 6% range (we can also provide a 10 year loan with an interest rate reset after 5 years). These loans will have at least some level of personal recourse. These loans offer prepayment flexibility to minimize the refinance costs when the markets stabilize.

There are some securitized lenders like Wells Fargo who are also creating a bridge program that they will hold on their books. These loans will not have the same prepayment flexibility but will contain other benefits. (rates are subject to change without notice)

Welcome to the BankAtlantic CRE blog

BankAtlantic is one of Florida's largest commercial real estate lenders. We have construction, acquisition/development and mini perm loans available at competitive pricing. Through our Capital Markets Group we also have access to permanent loans through life insurance, wall street and agency lenders.