"The panic has left the industry," Lonigan tells GlobeSt.com. "We're still coming out of a recession and dealing with the challenges that come with this level of re-calibration, but the blank panic that gripped the industry as recently as six months ago has effectively dissipated. That's enormous, because people are looking to understand the realities of real estate again and move back into doing deals."
By comparison to 2009, Lanigan says, borrowers and lenders are engaging "on a much broader level. With lenders, there's still some capitulation; the debate is whether they're being too lenient or not lenient enough. The negative is that there is still some real pricing discovery that has to occur. The positive is that if you're an advisory mortgage banking company like Meridian, you've never been needed more."
At this point in the cycle, we're well past what Lanigan calls "the chimp phase," in which even a chimpanzee could make money "because everything is just too easy. Usually we see this 12 to 18 months before a major correction. This time it lasted almost three years." During such periods in the cycle, he says, an advisory firm's competence and discernment is almost superfluous.
Last year, Meridian did $4.8 billion worth of originations amid what Lanigan calls a "horrendous market." Impressive as that may sound, Ralph Herzka, Meridian's founder, president and CEO, felt there were things the company could be doing better.
"We still have room to grow and develop, and to elevate ourselves as a company," Lanigan says. "Timing wise, this is actually a great part of the cycle to do it." Herzka brought in Lanigan—a veteran of both Prudential Commercial Mortgage and GMAC as well as his own company, Mezz Cap, which he founded in 2001—to spearhead Meridian's expansion of its products and service capabilities.
Lenders and sellers alike need answers at this point in the cycle. When sellers put their properties on the block, says Lanigan, it's often for what he calls "defensive" reasons. "They'd ideally like to sell and not be in a position to have to take a hit, or they're waiting for the bank to step in and reconcile it for them," he says. "Banks' procedures on doing that having been very uneven," largely because they're more apt to consider extending a loan than has been the case historically.
"But hope is not a strategy," says Lanigan. "It's important to understand that different banks have different tolerances right now, relative to well they're managing through things. Clearly, while there's always been a premium for the well-capitalized borrower, it's never been more so than it is today."
Although banks are looking for deep-pocketed borrowers in a position to acquire and manage properties, Lanigan points out that most importantly, they're looking for would-be buyers "to infuse new equity into these deals and have them right-sized to today's environment." For the advisory firm, he adds, the trick is to get in early enough so that the borrower can understand the situation surrounding a property and consider what options are available.
Six months ago, negotiating that landscape was "highly problematic," says Lanigan. "Today, there's been some spread compression already; some would argue there's been too much. But the reality is that some of the financings that aere out there now are providing real solutions to borrowers. I don't want to paint a picture of sunshine and butterflies, but you're starting to see the first signs of constructive lending solutions coming back into the market."
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
