Michael Stoler — Money ready to jump

After staying on the sidelines, banks and others ready to lend for commercial deals
By Michael Stoler | July 01, 2010 07:00AM

Perhaps I was dreaming that banks, insurance companies and other
lenders were all offering financing for commercial real estate. Yet it
was not a dream; it was taking place in front of my eyes: Last month,
more than 25 lenders participating in my symposium, “The Money Summit,”
announced they were interested in making loans on real estate.

Richard Coppola, managing director of TIAA-CREF, complained, “the
phones are not ringing; we are not seeing enough transactions.” That’s
a problem because the insurance giant hopes to increase loan production
by at least 50 to 75 percent this year nationwide.

Even investment banks appear ready to dive back into real estate.

JPMorgan, Deutsche Bank, Goldman Sachs and RBS Greenwich have
returned to provide commercial mortgage backed securities financing.
Michael Sarkozi, managing director of JPMorgan, said, “We are ramped up
to provide billions of dollars of financing this year.”

In June, JPMorgan announced that it planned to issue a $716 million CMBS offering, the second CMBS deal of 2010. According to the presale report, the transaction covers 36 loans secured by 96 commercial properties.

“Nine months ago, we would not entertain financing for a hotel, yet
today we are looking to loan up to $2 billion for a portfolio of
full-service, established hotels,” said Sarkozi.

What’s more, today’s loans are coming with attractive rates. The
best borrowers with low leverage can obtain mortgage loans of five,
seven and even 10 years.

It was only 12 months ago that Prudential provided a loan to the
Cross County Shopping Center in Westchester County at a rate of 7.5
percent. Today, rates can be as low as 4.5 percent on a five-year loan,
5 percent for a seven-year loan, and 5.05 percent for a 10-year loan.

The preferred asset classes for loans are office buildings in major
money-center cities, well-established retail malls, industrial
properties and multifamily buildings. Certain insurance companies might
even entertain a loan for an established full-service, four- or
five-star hotel.

The
large commercial banks don’t want to be on the sidelines and lose
financing opportunities to insurance companies. Lenders including Wells
Fargo, Bank of America, JPMorgan Chase, TD Bank, M & T Bank and
Signature Bank all expressed an interest in providing construction
loans for residential rental and condominium developments with low
leverage. The funds are available to established borrowers who are
willing to provide between 30 and 50 percent equity in the transaction.

George Klett, senior executive vice president and chairman of the real estate committee at Signature Bank, said that later in 2010,
after two years’ absence from the market, he plans to provide
construction financing. The president of the New York and Long Island
Region for M & T, Gino Martocci, said, “We never stopped lending
for construction loans, and we expect to provide financing for both
rental and condominium developments this year.”

With the hotel industry bouncing back this year, lenders including
Crédit Agricole, M & T and Wells Fargo have an interest in
providing construction and permanent financing for this asset class.
Certain lenders, including Wells Fargo and Crédit Agricole, so want to
entertain hotel and gaming loans that they have separate teams of
bankers specializing in this area.

Richard Born, principal of BD Hotels, noted that he had purchased
two New York properties that he planned to convert into hotels, and has
a number of lenders actively interested in providing financing. Lenders
that separately noted they were interested in providing financing for
hotels included Ladder Capital and Apollo Commercial Real Estate
Finance. Earlier this year, Apollo provided nonrecourse, five-year
fixed-rate financing of $32 million for the Hilton Garden Inn Tribeca.

Needless to say, banks continue to be bullish on residential rental
properties. New York Community, Dime Savings Bank of Williamsburgh, M
& T, Capital One, Sovereign and Investors Savings are banks leading
the pack in this arena.

Pricing for low-leverage transactions, for terms of up to ten years, is available at rates below 5 percent.

All I can say is, it is not a dream, but a reality: The banks are now open for business.