|
Harris Newsletter
I recently had a conversation with a good friend of mine who also happens to be a former president of BAMA. We were droning on as so many of us have done during the past year, about the sad state of the credit markets and the difficulties we face in our industry. Then our conversation turned to a questionnaire that my friend had emailed me. Essentially, after completing the questionnaire, the result indicates that we as a nation have a lot to be thankful for. As we step into the year 2010, I am definitely going to be mindful of that. Despite the obstacles ahead, I know that they pale in comparison to the plight of so many people on this earth. If you need a little inspiration, you can check out this questionnaire at www.globalrichlist.com.
It wasn’t long ago that we all felt that “the sky was falling” and the world as we know it was coming to an end. I remember attending an industry (IPMG) meeting in January 2009 and was surprised and encouraged to see the host deliver an upbeat assessment not only on the San Francisco market but on the entire Bay Area commercial real estate market. I was able to take that enthusiasm and relate this not only to my clients but also to the banks that we deal with in Southern California.
As we look ahead to 2010, credit is becoming available with a number of CMBS lenders looking to get back into the market. Significant transactions are being done, even if they are few and far between. One example of this is the $500 million senior portion of a $625 million 10-year JPMorgan loan to Inland Western Retail Trust, which closed this week. The loan was secured by 55 retail properties and was met with strong demand from the investment community. The loan to value was approximately 59% and the yield was 6%. Although all of the CMBS deals this year have been large loans to REIT’s or investment trusts there is talk of other major CMBS players returning to the market in 2010, giving borrowers more choices as liquidity slowly comes back into the market place. These companies hope to provide competitive 5-7 and 10 year fixed rate, non-recourse debt to borrowers that own individual properties. Please call us if you would like more information about this non-recourse, fixed rate program.
Local News: A local financial institution completed a note sale on a number of apartment buildings located in San Francisco. A number of people involved with the transaction indicated there were over 50 bidders for this portfolio. The winning bid was a local group. Investors will be keeping an eye on this transaction to see if the borrower will retain the properties or the holders of the note will start foreclosure proceedings. My opinion is that the new owner of the notes will need to work out some sort of arrangement with current owners if the note holder wants to avoid the borrower filing for chapter 11 bankruptcy.
Continuing Fallout: First Federal Bank of California located in Santa Monica and Imperial Capital Bank located in La Jolla are the two latest California banks to fail. First Federal Bank assets and branches were purchased by One West Bank of Pasadena. One West was formed to purchase the branches and some of the assets for Indy-Mac. First Fed was a major player in the apartment lending market in Southern California and also had a small presence in Northern California. Imperial Capital Bank was purchased by City National Bank. Imperial Capital Bank provided financing for higher leverage transactions and other deals that a traditional lender may not be able or willing to finance. Time will tell whether either of these two lenders will continue the tradition of lending on well positioned Commercial Real Estate in the markets they serve. First Federal and Imperial Capital did not fail because of their stabilized commercial loan portfolio; they struggled under the loans made to individuals in their no-doc or low-doc home loans. Imperial Capital Bank started an entire construction loan division and made a number of bad construction and bridge loans. I feel it will be at least a year or two before the two new institutions are able to sort out what they have in their portfolios, and begin placing new money on Commercial Real Estate in California. Fortunately, the markets will continue to be buoyed by new lenders taking advantage of the of the continued consolidation of the number of lenders willing to lend on small to mid-size commercial product. The lenders willing to write loans will be able to enjoy reasonable debt service coverage, low loan to values, and strong sponsorship.
We are grateful that our clients have put their trust in us. HCCA will end the year funding in excess of $60,000,000 on apartments and small commercial loans. We think liquidity will return slowly to this market, and plan on increasing our volume by at least 15% to 20% in 2010. The lenders we work with also hope to increase their lending capacity this year; however, some of the increases may be taken up in re-writing existing commercial loans. Banks will have the continued challenge of striking the balance between increasing lending activity while reducing their exposure to certain asset classes (as directed by the Federal Regulators). |