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Michael Stoler — Banks ready to return in 2011
This year could look like 2005, one analysis says
When will financing for commercial real estate return to the market? That’s the big question as we enter 2011. My answer is rather simple: It began to return in 2010 and will continue to pick up this year.
Based on preliminary reports, the volume of financing has increased by as much as 300 percent from 2009. A large portion of that was a result of the investment banks’ role in reviving commercial mortgage-backed securities lending. Commercial Mortgage Alert reported that as of Dec. 10, CMBS issuance totaled $10.4 billion, with a projected total of $13 billion for the year. This represents close to a 400 percent increase in CMBS issuance compared to 2009, when total issuance was a mere $2.7 billion in financing.
Of course, it’s a long way from 2007, when the CMBS market provided approximately $230 billion in financing, or nearly 50 percent of all commercial lending.
The CMBS research team at JPMorgan Worldwide Securities expects a total of $45 billion of gross issuance this year, which it believes will have underwriting characteristics similar to those seen in 2005.
Insurance companies are also among the lenders returning to commercial financing. Real Capital Analytics reports that insurance companies doubled their lending market share compared to 2009. For the 11 months ending Nov. 30, insurance companies were the most active lender group after government agencies (Freddie Mac, Fannie Mae and the FHA) and national banks.
Real Capital reported that Met Life and Prudential have accounted for roughly half of the gross lending volume for all insurance companies, with Met Life achieving a total of $1.9 billion year-to-date.
Stephen Rosenberg, chairman and CEO of Greystone Companies, expects Fannie Mae and the FHA to increase their loan production in the metropolitan area, especially for construction of multifamily residential apartment buildings.
Gino Martocci, president of the New York City and Long Island region of M&T Bank, helped his bank increase its commercial lending from $200 million in 2009 to over $1.5 billion in 2010, with the majority of that coming in the fourth quarter. James Carpenter, senior executive vice president and chief lending officer for New York Community Bank, expects his bank will provide close to $4.5 billion in financing this year.
The majority of financing from New York Community will be in the residential rental apartment sector, although, in December, New York Community Bank funded a $200 million loan for a Manhattan office building. In general, lenders are expected to remain bullish on financing in this market, especially for five-year, fixed-rate financing. The leaders in this arena include Capital One, Dime Savings Bank of Williamsburgh, Oritani Savings, Amalgamated Bank, Signature Bank, Capital One, Investors Savings, TD Bank, Ridgewood Savings, Flushing Savings and M&T.
In addition, financing is once again available for office buildings in Manhattan and the local suburbs. Pennsylvania-based PNC, Wells Fargo, Bank of America Merrill Lynch and Capital One have all expressed interest in this asset class.
Construction financing is available, too, for residential rental as well as condo developments. Well-capitalized borrowers can access lenders including JPMorgan, Wells Fargo, Bank of America Merrill Lynch, Capital One and M&T for financing in this asset class. Joining the ranks of lenders interested in providing financing for this asset class are Helaba, PB Capital, Natixis, ING, Deutsche Bank, Aareal and Nord/LB.
We cannot forget one of the most active lenders of 2009, Bank of China, which provided more than $1 billion in financing in 2010. In November, the bank provided an $800 million loan to Brookfield Office Properties for its office building at 245 Park Avenue, one of the biggest loans on a single property since 2008. Bank of China funded loans of $475 million for 1515 Broadway, $120 million for 63 Madison Avenue, and about $120 million for 600 Lexington Avenue.
Lenders continue to test the water in providing financing for other asset classes. The majority of lenders are interested in providing financing for urban retail, especially if the retail anchor tenant is a grocery store (though that may change with the recent bankruptcy of A&P).
I may not be the Amazing Kreskin predicting the events of 2011, yet when I look at my crystal ball, things seem to be brighter for financing for commercial real estate.