Lending of all types is returning, although, it is still limited and to some extent, still bifurcated. CMBS 2.0 is starting to ramp up again, although it is likely not to exceed $40-45 billion this year. The first pool of 2012 should happen very shortly with four others to follow soon after. The size is likely to stay around $1.0-$1.2 billion per pool. Average loan size will most likely stay moderate and be around $25-$35 million, with an average of about 50 to 60 loans per pool. There is not likely to be a lot of very small conduit loans this year. There will probably be fewer of the single asset or single borrower, mega loans than there were. However, the total volume will remain far below what is required to refinance the maturing loans of both CMBS and bank loans. There are not a lot of CMBS lenders active at the moment, but several are sitting on the side at the moment waiting to see how the market and the economy develop over the next few months.

Banks are getting back into lending again. It is not aggressive, and is still often limited to existing borrowers or local projects where the bank knows the area and possibly knows the borrower. Banks will remain very cautious in their underwriting and will continue to restrain lending to 60% to maybe 65% of cost or conservative value. The banks capital is now back to what is sound in many institutions, but they are not going to allow that to be jeopardized by excessive lending again. The regulators are all over the lenders to be conservative and to not allow high risk loans. In addition, the banks need to still be cautious as the economic recovery is still tenuous and could possibly go off track later in the year if there is war with Iran or if gas prices continue to climb to $5 to $6 or more. No bank is going to go out on a limb this year to extend high leverage or to lend where they are not very comfortable with the sponsor. The foreign banks have mostly withdrawn from the market due to their own capital shortage issues, and their own cost of capital makes it hard for them to compete against the strong US lenders on spread since US banks have very low costs of capital with US based deposits.

There are a lot of bridge lenders around now who will look for DPO, distressed REO buys or recap deals with rescue equity being infused. They are not willing to lend on deals that are just plain solid deals. They need value add deals that look like distressed to justify the higher rates they need to charge to meet their stated returns to their investors. There is an odd view of some of these lenders. They will only lend on distressed deals, and not on those where there is a class A asset with an institutional single tenant. The theory being the tenant might not renew. Yet they will loan on a partially leased multi tenant building hoping it will lease up. While I understand the risk issue, what became clear is that many of these lenders are really a fund, and they tell their investors that they are bringing smarts and value to the situation. If the building is class A and is fully let to a credit tenant, then there is nothing of value add to be brought by the bridge lender or equity, so they can’t justify to the investors that they should get their 2% fee and 20% promote, even though on a risk adjusted basis the class A building is a much better deal than some others.