LOS ANGELES-The securitization market is slowly awakening. So says Tom Muller, real estate & land use partner at law firm Manatt, Phelps & Phillips in Los Angeles. Muller recently spoke with GlobeSt.com about wounded banks, life insurance companies, construction lending (or lack of) and his thoughts on 2011.
Dolce: I know you have experience in the securitization market. Are things still dormant?
Muller: I would describe the market as continuing to slowly awaken. In 2009 and early 2010 we saw a handful of what I call “hand-made” securitizations--i.e., pools that were small and select enough that investors could look through the pool and underwrite each of the underlying loans to be sure the investment made sense. We've recently seen lenders originating loans for pools that will be larger and more diverse, and thus will begin to hark back to the pre-2008 days where investors relied on the diversification in the pool and the rating agency ratings instead of underwriting each of the loans in the pool. We will get back there, but it will be a slow process and I don't think the rating agencies will have the credibility they enjoyed before the meltdown.
Dolce: Are you seeing wounded banks lending? If so, to whom?
Muller: It may be happening, but I am not seeing much of it. In general, the stronger banks have a lot of loan capacity for “good borrowers” at conservative loan-to-value ratios, so if I’m a good borrower I'm going to a strong bank, where I don't have to take the risk that the lender can't perform.
Dolce: Where can you get a commercial real estate loan today? Life insurance companies perhaps?
Muller: For very strong borrowers, life insurance companies such as Northwestern Mutual, Prudential and MetLife are great sources of real estate financing today. They have very high-caliber lending teams, competitive interest rates and more flexibility than banks and investment banks who originate loans for resale. The life companies generally tend to hold their loans and so if you need a modification or want to sell the property, there's actually a live person to talk to, and probably the person who originated the loan for you. As many of us have learned in the past few years, there is a real value to that. In the past two years I've done dozens of these loans, ranging from $10 million to $300-plus million, and they've been a pleasure to do.
Dolce: I am hearing it is pretty much impossible these days to get a construction loan. What are you seeing?
Muller: Well, generally speaking new construction really doesn't make much sense right now, because you can buy most property types at prices below their replacement cost. So I don't think there's really much of a market for construction lending. Add to that the fact that it was the construction lenders who were and are continuing to be among the hardest hit by this recession, and it's not surprising you don't see much activity in this area.
Dolce: What is your forecast for 2011?
Muller: Based on the last few months, I think deal flow is steadily improving, and each deal done makes it easier to do the next one, so I'm predicting a much better year than we've seen in the last two or three years. It may even be that the economy has improved to the point where banks and servicers can afford to start dealing with their defaulted loans and REO assets in greater volume--though hopefully not in such a volume as to quench an emerging recovery.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
