Market Rate Watch

10 year treasury 6-1-09: 3.65%; 1 month ago 3.10%, 6 months ago, 2.66%; 1 year ago 4.03%
5 year treasury 6-1-09: 2.47%; 1 month ago 1.98%, 6 months ago, 1.63%; 1 year ago 3.36%
1 month LIBOR 6-1-09: 0.31%; 1 month ago 0.41%, 6 months ago, 1.90%; 1 year ago 2.46%


Wall Street: There was a recent article regarding the heralded opening of the TALF (Troubled Asset Relief Program) to CMBS. Unfortunately the returns required according to the article would place interest rates for new CMBS in the 9% range. Clearly the borrowing market is not ready for 9% interest rates. Wells Fargo parameters have not changed very much in the past 60 days. 65% loans are their max with terms from 2 to 5 years. Their interest rates remain competitive in the mid 6% range for the 2 and 3 year deals and the mid 7% range for 5 year deals. You can expect these rates to increase if the US Treasuries continue to rise as they have in the past 30 days. The other former conduit lender that is still open for business is CIBC which wants low leverage larger deals (in excess of $10MM). But their deal is 1 or 2 points up front, a 9% range interest rate and 1 or 2 points as an exit fee. Not surprisingly, CIBC has not done any deals in 2009.

Life Companies: This active market continues to include only a handful of life companies. Loan to values are in the 60% range for only the best quality deals and borrowers. Interest rates are in the mid to high 7% range for shorter term deals and approaching 8% for 10 year deals. Ironically most life company loan portfolios are still performing tremendously. I spoke to 2 major life companies in the past 2 weeks with loan portfolios in excess of $10 billion. In each case there were virtually no foreclosures and minimal 30 day plus delinquencies.

Credit Tenant Lease (CTL) Lenders: Very little has changed with CTL pricing. Rates for high level investment grade deals like Walgreens are in the high 6% range. Federal government deals are around 6.25%. Remember these loans are fully amortizing and typically need to be at least 15 year deals.

Commercial Banks: Deposits are a key for commercial banks as is the track record of the sponsorship and the financial wherewithal (think global cash flow). But deals are getting done with smaller regional players and community banks at 75% loan to value and at fixed interest rates of 5.75% to 6.5% for 5 year terms. The downside is that these deals are full personal recourse.

Fannie Mae and Freddie Mac: Multi-family financing is still widely available although interest rates have increased due to the recent spikes in the US Treasuries. 10 year deals for areas like Florida that are on the pre-review list (maximum 65% loan to value) are priced at just over 6% with a debt coverage requirement of 1.35. Both programs offer supplemental fundings which allow additional loan dollars as the cash flow increases.

Credit Unions: They are selective and location is important as the best deal is located in the CU’s market. Only smaller Florida deals are open for this lender. Interest rates in the high 6% to low 7% range for 10 year fixed rate loans. 75% loan to value is available as are construction and A&D loans. Limited recourse is a possibility. These lenders charge fees of 1 to 1.5 points.

MARKET RATE WATCH

10 year treasury 3-27-09: 2.76%; 1 month ago 2.91%, 6 months ago, 3.84%; 1 year ago 3.52%
5 year treasury 3-27-09: 1.80%; 1 month ago 1.97%, 6 months ago, 3.02%; 1 year ago 2.58%
1 month LIBOR 3-27-09: 0.52%; 1 month ago 0.48%, 6 months ago, 3.71%; 1 year ago 2.65%


Wall Street: The Mortgage Bankers Association recent conference hosted a panel on the future of CMBS and they estimated its return in 2011. Given the amount of commercial real estate financing coming due in the next 2 years they may actually be right because all those loans have to be refinanced somewhere. In the meantime, Wells Fargo continues to be the only non-recourse lender left in this category. They continue to look for only the highest quality deals and are willing to go as high as 65% leverage. Their rates have recently increased to the mid 6% range for 2 and 3 year deals to the mid 7% range for a 5 year deal. This is probably more a sign of their reluctance to do business versus a change in interest rates which have only gone down in the past 60 days. Another lender, NATIXIS, closed shop earlier this month so the field continues to be whittled down. Only a few Wall Street firms are left financing real estate like CIBC but they only want very large deals where they do not have to compete with the smaller community banks and their interest rates are in the 9% plus range.


Life Companies: There are only a handful of life companies in the financing market today. Though many hope to be back lending towards the summer it is just not realistic. The loan to value for life deals will be maximum 60% (though there are a few that quote as high as 70%) and available only for the best quality real estate with the strongest sponsorship. Interest rates for 10 year deals range from 7% to 8%. Although the delinquencies for life portfolios continue to be historically low they have risen substantially on a % basis and the expectation (or fear) is that they will go much higher.


Credit Tenant Lease (CTL) Lenders: They have recovered with interest rates for high level investment grade deals back below 7% and for some credits like the Federal government closer to the lower 6% range. The lower level credits can range as high as the upper 8’s. Cap Rates have been rising for single tenant deals and the CTL deal becomes more feasible even for non-1031 buyers.

NEW LENDER…CREDIT UNIONS???
Can you believe it? Yes…Credit Unions are taking advantage of this current crisis to pick up market share and get some great commercial real estate loans at historic interest rate spreads on good quality assets with the best customers. Typical loan size in the $1MM to $15MM range. Loan and short term deals available with interest rates in the lower 6% range to mid 7% range. Recourse is negotiable but they are not par and charge up to 1.5 points.

Fannie Mae and Freddie Mac: Multi-family financing is widely available at attractive rates and terms primarily because of these agency lenders. The most recent 60 plus day delinquency data shows that while the rate has doubled in the past 3 months, it still is at historic lows. And the housing crisis has actually been beneficial in many markets for apartment occupancies. There was a recent article in the WSJ commenting about the positive occupancy news in Ft. Myers. Florida is a pre-review area so leverage is at 65% (though on a deal by deal basis you can get higher). The interest rates continue to be extremely attractive. A 10 year interest rate today will be in the higher 5% range with debt coverage of 1.35 times. I recently quoted a floating rate deal for Fannie Mae with an initial pay rate of 4.87% (though the deal must underwrite to a 6% interest rate)

THE LOOMING COMMERCIAL REAL ESTATE FINANCING CRISIS / STRATEGIES FOR REFINANCING

With over $270 Billion of commercial real estate loans coming due in 2009 the question is “Where can I refinance?” Underwriting criteria has changed so dramatically that even if you do find a lender you may not be able to refinance enough to pay off the loan balance and loan costs. There has also been extra scrutiny paid to the quality of the borrower financials and track record, especially for non-recourse loans.

If you have a loan coming due anytime in the next 12 months NOW is the time to start considering your options and developing your strategy. BankAtlantic can help you devise a strategy which begins with a review of the loan amount that can be achieved based on current underwriting standards. One decision that will need to be made is whether you can live with personal recourse. It is very likely that the best deal in terms of loan to value and interest rates will come from commercial banks.

Your other strategy is to extend the loan with the current lender. This can be difficult for loans that have been securitized. BankAtlantic can help you on a consulting basis and work with your lender to get as much as a 2 year extension. You can contact me at nefron@bankatlantic.com or call me at 561-379-5807.

Commercial Real Estate Lending Update

MARKET RATE WATCH

10 year treasury 2-2-09: 2.82%; 1 month ago 2.18%, 6 months ago, 4.11%; 1 year ago 3.58%

5 year treasury 2-2-09: 1.83%; 1 month ago 1.50%, 6 months ago, 3.44%; 1 year ago 2.74%

1 month LIBOR 2-2-09: 0.41%; 1 month ago 0.45%, 6 months ago, 2.45%; 1 year ago 3.27%

Wall Street: At the recent CMSA conference in Miami Beach the securitized market players suggested internal controls when securitized lending returns (which everyone agrees is at least 2 years away). Some of the suggestions include lenders keeping the first 5% to 10% of the loss position and that rating agencies get paid over the life of the security versus up front. Wells Fargo continues to be the only non-recourse lender left in this category. Their criteria have remained conservative with a max loan to value of 65% (only for the better quality deals). Their fixed rates have remained steady with 2 year deals in the lower to mid 5% range; 3 year deals in the mid to upper 5% range; and 5 year deals in the mid to upper 6% range. The debt coverage remains at 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 floating rate is in the lower 8% range (with a floor on LIBOR of around 3%). A 75% loan has decreased slightly as well and will be in the low 9% range. The lender may require some level of recourse.

Credit Tenant Lease (CTL) Transactions have started to recover as the commercial paper market has improved. Interest rates for Walgreen’s deals have fallen to 6.87% for a fully amortizing 25 year loan. Government deals can now get financed in the low 6% range. CVS deals are getting financed in the low 8% range and Walmart’s in the low 7% range. Depending on the overall credit ratings the interest rates can be as high as the mid 9% range. AutoZone and Office Depot are on the borderline right now and cannot be quoted. Remember that the longer the lease term the better for these CTL deals Underwriting remains very simple with no loan to value constraint and debt coverage as low as 1.0 times. Deal size can be as low as $1.5MM. Community and regional banks may offer the most competitive interest rates for these types of deals on a 5 year fixed rate basis in the low to mid 6% range but they will require at least some level of recourse.

Fannie Mae and Freddie Mac continue to be the best source for multi-family financing and have been very active. Some states though have been put on a pre-screen list which will mean more conservative underwriting. Loans in Florida will most likely be in the 65% to 70% loan to value range and have a debt coverage requirement of 1.35 times. Spreads have stabilized but recent bumps in the US Treasuries have bumped up the 10 year interest rate range about ¼ point to the low 6% range. Freddie Mac follows Fannie Mae’s lead but is looking for larger deals ($10MM plus). For deals outside if Florida the loan to value range can still be up to 80% and the debt coverage can be as low as 1.20 times.

Life companies will have very limited loan dollars available for commercial real estate in 2009. Most life companies have particular allocation targets for real estate investment. With stocks tumbling at the end of 2008, the allocation increased beyond those targets. One large life company who normally puts out $2.5B will have NO MONEY FOR MORTGAGE INVESTMENT in 2009. There are a few selected life insurance companies that will have money available. The maximum loan to value will be 65% with 10 year rates in the mid 7% to 8% range. These non-recourse deals will be available only for the best quality real estate with the strongest sponsorship.