MIAMI, FLA—Shahram Siddiqui, a partner at Berger Singerman, has a unique way of describing this particular part of the commercial real estate capital markets cycle: investors have gotten over their low-hanging fruit syndrome, he says, and are ready, willing and able to compete for value-add deals where structuring flexibility is the determining factor in winning a loan assignment. "The easy refinancing deals have, for the most part, closed," he tells GlobeSt.com.
That is good news for borrowers, which have a range of sources to tap for financing—each with their own benefits and drawbacks, which Siddiqui has outlined below. First, though, there are some absolutes for all of these players, he says. "The 100% LTV days are gone. Some skin in the game is required." Also, "if you fought a foreclosure with a prior lender, even if you were right, or otherwise hindered the process, such as b filing for bankruptcy then you are persona non grata at most lenders."
With those two extremes duly addressed, Siddiqui gives GlobeSt.com readers his view of the CRE capital markets and where they are right now in terms of appetite for deals—and subsequently, risk.
Banks
Generally will offer a good, but not the best, rate because their cost of capital is lower than most other lenders, aside from CMBS, Siddiqui says.
"Virtually all of this debt capital is funded on a recourse basis," he says. Also, as is always the case with banks, flexibility in non-monetary terms is limited due to regulations. However, Siddiqui continues, banks can be flexible on terms such as giving a borrower the ability to substitute collateral, longer maturity date loans and future advance provisions. Also, deals with a limited story can find a home here.
He tells of acting as bank counsel for refinancing involving an asset that previously used low-income housing tax credits. "So there was a need to structure around those credits and the credit buyer. The flexibility of a lender who would retain 100% of the exposure allowed us to find creative solutions to the presence of tax credits in the deal."
Bottom Line: Banks are opportunistic in the market today but most of these lenders are aggressively managing their real estate capital exposure, he says.
Insurance Companies
Insurance companies are being very flexible on terms and reasonable in price. Siddiqui, in fact, says they are one of the best lenders for repositioned assets, as opposed to distressed assets.
In addition, in most loans there is a reasonable opportunity to get non-recourse funding, he says.
Insurance companies are equally creative on giving a borrower the ability to release individual collateral, and granting the right to substitute collateral. "We have seen insurance companies give 30-year loan terms, with 65% leverage, and future advance provisions."
As an example, Siddiqui points to a large loan his firm recently secured with an insurance company for the repositioning of a regional mall. The loan included a large line for improvements to the property, flexibility on payment terms and had a term that totaled 30 years with all of the extensions are exercised.
Bottom line: Insurance companies are aggressive in the market and looking for opportunities.
Come back tomorrow for part 2, when Siddiqui talks about CMBS and shadow lending.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
