From left: The entrance to Eurohyop’s NYC offices and 9 MetroTech Center (building credit: PropertyShark)As European banks mitigate risk amid the debt crisis that’s consumed the continent, many have stopped lending for commercial real estate projects in the U.S., Reuters reported. The total amount of money European banks loaned to the sector has fallen by 31 percent in the last two years, according to Trepp, and more banks have announced they would reduce U.S. property loans.

While European real estate lending is not widespread in much of the United States, it is crucial in big cities like New York. Forest City Ratner was directly affected by this trend in October, when German bank Eurohypo suddenly dropped out of serious negotiations to provide a $65 million loan for 9 MetroTech in Brooklyn. [more]

Jamie Woodwell

The amount of outstanding commercial and multi-famly mortgage debt declined 1.6 percent between the second and first quarters of the year, according to the Mortgage Bankers Association. The debt dropped to $3.24 trillion in the second quarter, a $52 billion decrease from the first quarter’s outstanding debt. Jamie Woodwell, a vice president with the MBA, said that the figures indicate tepid demand for commercial and multi-family loans. “Demand for commercial and multi-family mortgages, while increasing, remained weak in the second quarter and contributed to the continuing trend of loans paying down and paying off faster than new ones replace them,” Woodwell said. TRD

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MBA’s Jamie Woodwell

The amount of outstanding mortgage debt in the commercial and multi-family sectors nationwide decreased to $3.31 trillion in the first quarter of the year, dropping $31 billion from the fourth quarter of 2009, according to the Mortgage Bankers Association. The decline marks a .9 percent quarter-over-quarter reduction in the total amount of commercial and multi-family mortgage debt nationwide. Despite this relatively flat level of activity, Jamie Woodwell, vice president of commercial real estate research with MBA, said that he believes more borrowers are making the effort to pay down their debts. “Low levels of commercial mortgage borrowing mean that property investors are paying off… more in mortgages than they are taking out,” Woodwell said. TRD

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MBA’s Jamie Woodwell

The amount of outstanding mortgage debt in the commercial and multi-family sectors nationwide decreased to $3.31 trillion in the first quarter of the year, dropping $31 billion from the fourth quarter of 2009, according to the Mortgage Bankers Association. The decline marks a .9 percent quarter-over-quarter reduction in the total amount of commercial and multi-family mortgage debt nationwide. Despite this relatively flat level of activity, Jamie Woodwell, vice president of commercial real estate research with MBA, said that he believes more borrowers are making the effort to pay down their debts. “Low levels of commercial mortgage borrowing mean that property investors are paying off… more in mortgages than they are taking out,” Woodwell said. TRD

[more]

Jamie Woodwell

Commercial and multi-family loan originations were up 12 percent in the first quarter nationwide, compared to the same quarter a year earlier, but down 26 percent from the fourth quarter of 2009, according to the Mortgage Bankers Association. While there was a quarter-over-quarter drop, Jamie Woodwell, the vice president of commercial real estate research with MBA, said it’s too early to make assumptions about the market’s momentum. “It’s hard to draw conclusions based on first-quarter numbers given seasonal effects, such as the industry’s usual push to finalize deals before the end of the year, resulting in lower first-quarter origination activity,” Woodwell said. Several sectors saw marked increases in the number of loan originations year-over-year, including retail properties, which saw a 98 percent increase, office properties, which saw a 29 percent increase, and multifamily properties, which law loan originations climb 5 percent. Three types of commercial properties, including industrial, hotel and health care, saw drops of 28 percent, 46 percent and 68 percent, respectively. Overall, Woodwell said that lenders might be loosening up, a strong sign, despite the market’s relative lethargy. “There appears to be increasing capital available for commercial mortgages, but only limited demand for new mortgages from commercial and multifamily property investors,” Woodwell said. TRD

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The Congressional Oversight Panel said in a report released today that it is “deeply concerned” that a pending wave of commercial real estate loan failures could threaten the nation’s fiscal stability, but that “no single cause” can be identified in the commercial mortgage crisis (see full report here). Loans made during the peak of the commercial market bear the highest risk of default, according to the report, while almost half of the commercial real estate loans expected to reach maturity between 2010 and 2014 are currently underwater. All told, about $1.4 trillion worth of commercial real estate mortgages will hit the end of their terms during that four-year period. Although 2010 may remain somewhat calm, the report claims, 2011 and the subsequent years could be brutal for commercial lenders with expected losses for banks ranging from $200 billion to $300 billion. TRD [more]

From the November issue: The new tax rules handed down by the Treasury Department in mid-September are prompting more lenders to employ already-popular “extend and pretend” and “delay and pray” strategies. These darkly comic catchphrases, of course, are used to describe the practice of extending the maturity on troubled loans rather than working out a deal that would reveal just how little the debt is now worth. Those who follow commercial real estate say the federal government’s new regulations — which were designed to help facilitate the modification process for troubled securitized loans — give loan servicers greater leeway to extend loans. Attorneys and advisors with experience working on troubled loans say they have seen a big increase in “extend and pretend” transactions this year across various asset classes. They forecast more such deals, thanks to two favorable trends — the new accounting rules and low interest rates. “Our view is that this condition [of rampant extensions] is going to continue for a while — the alternative is for lenders to decide they have to recognize losses,” said Paul Fried, managing director at advisory firm Traxi.

A number of banks in the United States are worried about potential
defaults on their outstanding loans in the commercial real estate
market. According to articles on PropertyWire.com and Bloomberg, the country’s
10 biggest banks have a total of $327.6 billion in commercial
mortgages, which could prompt a wave of defaults as a result of
increased office vacancies and bankruptcy of retailers. A number of office buildings purchased in New York City during 2006 and
2007 have great exposure to potential defaults due to a combination of
increased vacancies and significant reductions in
office rents. With office rents dropping by at least 30 to 40 percent,
industry leaders are worried that these properties will not be able to
meet debt service resulting in possible bankruptcy or foreclosure. Real estate research firm Reis projects a tripling of the default rate,
which would result in losses of about 7 percent of the total unpaid
balances. [more]