Much attention has been focused on the role of sovereign wealth funds in propping up American banks. But as the subprime crisis continues whittling at the market for commercial mortgage-backed securities and traditional domestic lending sources, a number of foreign banks are also stepping into the fray, providing critical capital to select New York developers. Among the leading commercial lenders, German and Irish banks continue to dominate, with Canadian and French banks actively seeking new deals as well. In recent months, Chinese banks have also begun to flex their muscles — and in a bit of a surprise, at least one major Japanese bank has returned to New York.
“There’s certainly more activity on the foreign front than on the U.S. front,” said Dennis Russo, a real estate attorney with New York-based Herrick, Feinstein LLP.
For the first half of 2008, foreign banks provided about 15 percent of commercial real estate loans in the United States, compared to 8 percent supplied by major American banks, based on $33 billion in deals analyzed by Real Capital Analytics. The data show that 50 percent of all deals are being financed by buyers assuming distressed loan payments or mortgages that cannot be sold.
The remaining deals have been financed by savings and loans, insurance companies, finance companies and a small percentage of Wall Street lenders.
German banks Eurohypo AG and Nord/LB have worked very closely with Forest City Ratner in recent months. In July, Forest City closed a $45 million fixed-rate, permanent financing with Nord/LB for its mixed-use office complex at 330 Jay Street in Brooklyn.
In March, Eurohypo led a consortium of banks, including Nord, in the $680 million financing of Forest City’s Beekman tower in Lower Manhattan.
Meanwhile, the real estate intermediary firm Holliday Fenoglio Fowler brokered a $90 million refinancing agreement in July with Germany-based Helaba for 401 West 14th Street, a 62,000-square-foot office and retail complex.
Also, Natixis, a leading French bank, led a syndicate that financed the blockbuster $680 million acquisition of 650 Madison Avenue by Ashkenazy Acquisition Corp. and the Carlyle Group. The trophy office tower includes 600,000 square feet of office and retail space, including the national headquarters of Polo Ralph Lauren and flagship stores of Crate & Barrel and Todd’s.
Scott Zucker, head of acquisition at New York-based Natixis Real Estate Capital, said the bank has been actively looking for new deals, but that it’s been hard to offer attractive terms to borrowers in the current environment.
“We worked on a bunch of acquisitions this year, and a lot of them don’t close,” he said. “Once the buyer goes out to the market and finds out what the cost of senior debt is, and the cost of leverage, they can’t support the purchase price.”
Among Asian banks, Russo said that Sumitomo Mitsui Banking Corp. is actively considering a major commercial office building deal in New York, and the Bank of China has also been active. He declined to give further details on which clients are involved.
Financial experts warn that while international banks have stepped into the breach left by the credit crisis, the companies are being highly selective about who they work with and what type of deals they finance.
Steve Kohn, president of Cushman & Wakefield Sonnenblick Goldman, said foreign lenders are focusing on Class A office buildings and residential towers that provide steady cash flow. Loans are being written with conservative loan-to-value ratios of 60 percent to 70 percent at most, he noted, and banks are staying clear of condos.
He also said banks are tightening up on loan agreements to reduce the amount of risk.
“If there is a development project, you will need completion guarantees,” said Kohn. “If there are operating deficits projected, they will want limited recourse.”
Enoch Lawrence, senior vice president at CB Richard Ellis, said banks are no longer financing deals based on pro forma income projections, but want to see consistent income flows over the previous 12-month period.
Russo added that, for the most part, foreign banks are not lending on deals outside of Manhattan and are shying away from any new construction projects.