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“Most life companies, in the aggregate, are doing $40 billion a year...Portfolio lenders are viewed as the savior these days and I think that’s a little overblown.” —Steven Graves, managing director and COO of Principal Real Estate Investors, referencing a 'CMBS void' in commercial real estate finance.

Dry CMBS Leaves Opportunities for Others
Jobs Could Cure Recession Fears in CRE Market
U.S. Hotels Top $45B This Year, JLL Survey Says

Hedge Funds, Headlines Void November CMBS Market
European CMBS Market Takes Harder Hit in Credit Crunch

MBA Report Highlights 2006 Multifamily Lending
CRE CDO Delinquencies Edge Higher, Fitch Says

Sierra Capital Closes on $26M for California Multifamily

Sarah Tinsley Demarest Joins MBA as VP of Public Affairs
CREF Convention/Expo Feb. 3-6
Path to Diversity Scholarship Application Deadline Dec. 12

CMBS Budgeting for Enhanced Reporting Requirements a Necessity in 2008

After Subprime, Leveraged Funds Short CMBS Market

Call for Proposals Open on MBA's Commercial/Multifamily Servicing and Technology Conference in 2008

For example, MetLife, New York, invested $9.5 billion nationally in commercial real estate earlier this year, but Brian Casey, the company's director and regional officer, said MetLife can "pull back" because the firm hit its goals amid concerns about the current liquidity crisis in the market. Casey said MetLIfe will not close anything else for the rest of the year if it is not already in the pipeline.

“During July, we were concerned about how we were going to hit those numbers,” Casey said.

MetLife found opportunities after the credit crunch to gain market share on $100 million-plus deals while competing against other lenders. “That was a great place for us to widen out the spreads and do quality deals at that kind of level when all we are talking about is additional borrowers,” Casey said.

“We’re signing up deals every week with life companies that are overflowing with capital,” said Carl Olzawski, senior vice president at Grandbridge Real Estate Capital, Winston-Salem, N.C. “They are 50-100 basis points inside CMBS spreads.”

Permanent financing is still at 75 percent loan-to-value for Imperial Capital Bank, La Jolla, Calif., but pricing is also higher for portfolio lenders and in the short-term, some stagnant investors, they could be dealing with “price sticker shock,” according to Renee Mankoff, senior finance executive at the company's Baltimore office.

“If you can find borrowers, it is a ‘heyday’ [for lenders],” Mankoff said. “I think it is a ‘heyday,’ but there needs to be a period of time where the borrower—the investor—is over the sticker shock. There is a lot of backing off to see what happens, and when people come to grips with the fact that spreads are probably not going to go back down for awhile, then there is...opportunity for lenders.”

Mankoff said costs of funds have also not decreased and the bank must answer to shareholders, but its pricing on short-term repositioning loans have not increased. “We have not restricted our programs,” Mankoff said, noting that opportunities exist in repositioning non-performing and underperforming assets.

Participants said Fannie Mae and Freddie Mac are also offering competitive deals in the multifamily market; and FHA loans for multifamily and healthcare properties remains another option, although time to get the commitment and ensure that execution does not “dovetail” with a contract in the wings is the main issue.

“The seller has to be willing to wait for the process, but it is a great execution,” Olzawski said. “For apartments, we’re pricing that with our other products and giving them a choice. It’s very attractive.”

However, the CMBS market accounted for nearly 70 percent of commercial real estate finance in 2006, and a market shutdown next year would leave a large void of capital for borrowers along with higher pricing.

“Most life companies, in the aggregate, are doing $40 billion a year,” said Steven Graves, managing director and COO of Principal Real Estate Investors, Des Moines, speaking recently at the Mortgage Bankers Association’s Capital Markets Conference. Graves estimated that even a 20 percent increase of allocations on $40 billion would not be enough to fill the CMBS void. “Portfolio lenders are viewed as the savior these days, and I think that’s a little overblown,” he said.

Despite pricing volatility, Cliff Mendelson, senior managing director at Transwestern in Bethesda, Md., said there is still money at certain CMBS shops for deals. “They just have to be right down the middle of the fairway,” he said.

Unlike subprime residential lenders, where no spreads became profitable, life insurance companies and other portfolio lenders can lend in markets that continue to exhibit strong fundamentals and benefit from wider spreads on more conservative underwriting. “[Portfolio] lenders are getting these crazy spreads now because they can,” said Michael Brodsky, CEO of Goldstar Group, Bethesda, Md.

Since the August credit crunch, MetLife started to look at spreads 75 percent to 85 percent higher than in March with loan-to-values that dropped from 65 percent to 55 percent LTVs. “It’s kind of scary,” Casey said. “The difference is our target that we just put out for next year is $9 billion for only commercial mortgage production. It will be interesting to see how we get there. We got there this year in a way that no one could have predicted, and our hope is that we can get there in 2008 by doing high quality deals at good spreads—kind of ‘down the [middle of the] fairway.’”
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Jobs Could Cure Recession Fears in CRE Market
MBA (12/6/2007) Murray, Michael

WASHINGTON, D.C—As financial markets look to heal, the prognosis of a recession hangs in the balance and jobs remain a key statistic for next year’s commercial real estate market, according to industry experts speaking here at the Mortgage Bankers Association’s Commercial/Multifamily Capital Markets Conference.

Lyle Gramley, senior economic adviser to Washington D.C.'s Stanford Washington Research Group, noted every housing decline ended in recession with the exceptions of 1950 and 1966—the start of the Korean and Vietnam Wars, respectively. Recession risks have risen in the past couple of months but are not inevitable as global trade on net exports will likely offset the drop in residential investment, according to Gramley. “I think we can still escape but it is going to be a close call,” he said, calling the odds “50/50.”

“Jobs is the number one issue to watch,” said Anthony Butler, director of structured products research at Wachovia Securities, Charlotte, N.C. “Jobs, jobs, jobs is the key in commercial real estate. As long as there is job growth, we should be all right.”

Chase Belew, president of AMS Real Estate Services, Houston, said that area will add 75,000 jobs this year, and despite problems in certain markets in Texas, volume is high and Texas multifamily remains stable—with one exception of a major delinquency that appeared under control.

Also, strong employment numbers would be the stabilization factor to prevent a potential recession, despite current market volatility in a market that moves in extremes, according to Butler. “That’s the number one driver for commercial real estate. If we start seeing jobs continuously—three, four months in a row—losing significant jobs, commercial real estate is going to be in trouble. That has always been our number one key focus—jobs,” Butler said.

Michigan and Ohio, two manufacturing states weakened by unemployment, also took hits on commercial real estate with layoffs at the General Motors plant and many areas in Ohio were hit with defaults. “We haven’t had as many problems in Detroit. We’ve had a disproportionate number there compared to others. We have major problems in Ohio—throughout the state,” said Kevin Donahue, senior vice president of the special servicing group at Midland Loan Services, Overland Park, Kan. 

Donahue said a recession would not hit commercial real estate as hard as the residential market, but it would have an impact, particularly on the smaller “mom and pop, unanchored, non-credit” retail getting financed at...more than $30 per square foot net rent. “If consumers pull back, those tanning salons, nail places, martial arts studios are going to have a real hard time selling enough of their product to continue justifying paying $30 per square foot,” Donahue said. 

Gramley said that with banks tightening lending standards, capital dropping and future concerns, the financial markets need a time to heal. “If they don’t heal, we are going to be in very big trouble,” he said.

 “I don’t think it’s a question of whether the financial markets are going to heal. It’s when they are going to heal and at what pace they are going to heal,” said Michael Berman, president of CW Capital, Needham, Mass.

“We’re coming into year end and [CMBS issuers and originators] have had their hands tied behind their backs,” Butler said.

Friday, November 30, basically ended the fiscal year for the brokers while everyone else finishes their books at the end of the calendar year. "Hopefully, everybody has taken their pain and then find that they are ready to say, ‘Things are pretty crazy now. Let’s get back to a level or modicum of sensibility’—unless everybody is saying they have to earn 12.5 percent on a AAA, which has not historically been the long term case.”

Gramley pointed to key factors to prevent a recession, including a healing for financial markets, strong exports and the Fed dropping rates. Commercial mortgage-backed securities investors, now sitting on the sidelines, will also look at consumer spending and its effect on the economy. Less ability to extract home equity could be a major factor in consumer spending, but Gramley’s bottom line is to “never sell the American consumer short.”

“If he can figure out a way to spend, he will,” Gramley said, adding that wage income has been doing well, along with employment growth and a decline in inflation. Gramley added, however, that employment is slowing and oil prices are going up. “Home prices have gotten way out of line with rents and income. Home prices will either fall on their face or decline slowly as rents grow—and then we are back to where we were,” Gramley said

Gramley, a former member of the Federal Reserve Board, forecasts the Federal Open Market Committee to cut the key rate by at least 25 basis points—possibly 50 basis points—at its December 11 meeting. “I certainly acknowledge that the Fed cannot be cavalier about where inflation is going in the long run,” he said. “But this is not the time to fight inflation.”

On October 31, six Federal Reserve banks did not believe it was appropriate to lower interest rates, but Gramley said the other six banks will “carry the day” in December. “Is it going to be a controversial decision? Yes, it is,” Gramley said.
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U.S. Hotels Top $45B This Year, JLL Survey Says
MBA (12/6/2007) Murray, Michael

Hotel transaction volume exceeded $45 billion in the United States, a record pace for the fourth consecutive year, according to a global Hotel Investor Sentiment Survey from Jones Lang LaSalle, Chicago.

More than half of that volume, $23 billion, was generated by nine separate U.S. mega-deals or portfolio deals valued at $600 million or more. The top three mega-deals included: the Lightstone Group acquiring Extended Stay America for $8 billion; Morgan Stanley purchasing eight premier properties in the Luxury CNL hotel portfolio for $4 billion; and Ashford Hospitality purchasing the CNL hotel portfolio for $2.4 billion.

Major global private equity firms tended to favor larger more efficient transactions by raising significant capital, making portfolio deals particularly attractive, according to Jones Lang LaSalle. Until July, capital was available and favorably priced, but less debt from securitized lenders created a "flight to quality" in order to fund larger transactions, according to Arthur Adler, CEO and managing director of Americas for Jones Lang LaSalle Hotels. “Also, sponsorship has never been more important. As a result, mega-deals will require significantly more equity than in the past, making it more difficult for investors to achieve targeted return hurdles,” Adler said.

“The debt markets will need to demonstrate increased liquidity if we are to expect a continuation of these mega-deals” said Kristina Paider, senior vice president of marketing and research for Jones Lang LaSalle Hotels. “Investors have diverse opinions about the short term. Some perceive the short term as an opportunistic period with less competition, while others are on the sidelines with the belief that cap rates will expand and better buying opportunities will come in 2008. Flippers may decide to sell in ’08 at a modest gain rather than holding for another few years. If this is the case, we could see an abundance of single asset sales in 2008.”

The survey highlights ongoing activity in the hotel sector by investors. In the survey, trading performance expectations represent the survey respondent projections of how occupancy and average daily rate will change in the future.

“The short and medium range outlook for positive trading performances has contracted in the U.S., to 25.8 percent and 23.6 percent, respectively. New York and San Francisco displayed the most positive short-term outlook, with the highest percentage of investors expressing confidence in these markets during the next six months at 70.2 percent and 61.8 percent, respectively," Paider said. "These high barrier-to-entry cities are top destinations witnessing record occupancy rates, boosted by foreign travelers taking advantage of the low U.S. dollar. In addition, the weak dollar, which is expected to remain weak, will fuel increased off-shore investment into U.S. real estate.”
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Industry analysts said news headlines on surging delinquencies led to wider spreads in November as financial institutions marked down third quarter losses causing more economic panic. The markdowns reflected results from the subprime housing crisis, but it also increased panic into the capital markets with increased recession fears. Financial experts said rising delinquencies in commercial real estate during the third quarter were probably impacting the CMBX index, used for synthetic CMBS investment.

“We are a little disappointed with November and, frankly, quite surprised by it,” Steven Graves, managing director and COO of Principal Real Estate Investors, Des Moines.

Many industry analysts and experts said the media was the cause for much of the volatility in the market. According to analysts, headlines emphasized a “surge” in CMBS delinquencies, causing synthetic CMBS spreads—the CMBX index—to increase as synthetic asset-backed bonds—the ABX index—dropped in price.

Global macro hedge funds, which allocate risk capital globally to opportunities where the risk versus reward investment trade-off could be attractive for investors, shifted away from the CMBS market in November. According to Hedge Funds Research Inc., Chicago, global macro hedge fund traders are not limited to particular markets or products—free of certain constraints that limit other hedge fund strategies—and they can incur large swings in gains and losses from leveraged directional bets. From January 1990 to December 2005, global macro hedge funds posted an average annualized return of 15.62 percent, with an annualized standard deviation of 8.25 percent, HFR Inc. reported.

Lisa Pendergast, managing director at RBS Greenwich Capital, Greenwich, Conn., global macro hedge funds became CMBS buyers but they are neither commercial real estate nor traditional AAA CMBS buyers. “These are investors who have not participated in our market ever and, frankly, probably have never focused on commercial real estate,” Pendergast said.

“The problem with that is that if you have the mass media and the financial media saying that ‘Yikes, CMBS delinquencies surge when they go from .4 to .45, they are not necessarily going to care about reading the next sentence. All they are going to read about is ‘Yikes, they’ve surged…Oh, that’s a good short’,” Pendergast said. “Then CMBS investors see that they sell short and they talk about those shorts, others go in and sell short and it becomes a self-fulfilling prophecy.”

“Sensational headlines sell papers,” said Kevin Donahue, senior vice president of the special servicing group at Midland Loan Services, Overland Park, Kan. “Nobody is saying 85 percent of subprime loans are current or 98 percent of mortgages are current. They’re saying that foreclosure rates have tripled.” Donahue noted that the industry needs to keep an historical perspective. He said a default rate of less than 1 percent was thought impossible nearly 10 years ago, and delinquency rates were at nearly 20 percent during the S&L crisis in the late 1980s and early 1990s. “I grew up in this business through a number of cycles. [I] went through the RTC where we had 20 percent default rates,” Donahue said.

The problems are in using CMBX to hedge, according Anthony Butler, director of structured products research at Wachovia Securities, Charlotte, N.C., who said this type of hedge combined with CMBS delinquency headlines could create a self-fulfilling prophecy. “All the issuers would use it for a short if it correlated to their execution on the cash bonds. The ‘Great White Hope’ when it first came out was that it was going to work and be cheaper than correlated, thin swaps," Butler said. "It didn’t correlate at all and it has been highly volatile."

Pendergast pointed out that global macro hedge funds primarily work for the first macro trader who purchases CMBS short, betting it will drop in price. “By selling it short, the price drops. Without a loss, it turns out to be a poor hedge, but it is an extremely negative hedge,” Pendergast said. “Their nature is to come in and get out. It’s an extremely negative caricature considering where spread levels are.”
 
Graves, however, said the industry has seen the CMBS indexes “blow out" quickly and they can correct quickly. “If there is a correction, the herd will follow, but it’s been somewhat of an albatross around our neck,” Graves added.

CMBS lenders accounted for nearly 70 percent of commercial real estate investment prior to July and without CMBS to finance commercial real estate, Graves said it leaves a significant void.

“Most life companies, in the aggregate, are doing $40 billion a year.” Graves said, estimating that even a 20 percent increase of allocations on $40 billion would not be enough to fill the CMBS void. “Portfolio lenders are viewed as the savior these days and I think that’s a little overblown.”

Graves said most major banks are highly regulated entities that want to gain their allocations without taking large risks, also making them unlikely to fill the void left by CMBS investors as well as the Structured Investment Vehicle buyers. SIVs became a large part of the floating rate CMBS market until SIV managers saw commercial paper spreads widen up to 100 basis points in August.

After the industry sorted out an increase in CMBS delinquencies in July and ratings agencies increased subordination levels, Graves said pension funds viewed CMBS as a “great buy” in August. According to Graves, pension funds started to take some comfort in spreads moderating.

In October, CMBS spreads started to come back in, and the market fundamental appeared to be moving forward. The market showed some signs of relaxing as CMBS spreads started to moderate. “Once that tipping point happens, it can happen real quickly,” Graves said of investors coming back to the market. “Then November happened.”
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European CMBS Market Takes Harder Hit in Credit Crunch
MBA (12/6/2007) Murray, Michael

WASHINGTON, D.C.—When asset-backed commercial paper (ABCP) spreads increased and the structured investment vehicle (SIV) market collapsed, it not only caused the credit markets havoc on a global scale but it completely shut down the European commercial mortgage-backed securities market, which will not likely open until the United States market returns.

That is the consensus of industry experts speaking here last week at the Mortgage Bankers Association’s Commercial/Multifamily Capital Markets Conference. Structured transaction commercial paper and CRE CDOs were purchased at the highest credit levels by SIVs to run their long-short position investments. “The SIVs were borrowing commercial paper at 95 percent to 98 percent,” said Douglas Cooper, managing director of American Capital, Bethesda, Md.

However, when the subprime crisis hit and spreads widened on other asset-backed commercial paper, it became a crisis with risk averse investors, according to Brian Lancaster, head of structured products research at Wachovia Capital Markets LLC, Charlotte, N.C. “That shut down the European CMBS market, which is in worse shape than the U.S. CMBS market,” Lancaster said.

The market collapse closed down the floater and CRE CDO market as well, which purchased and financed mezzanine and B-piece loans. “This is one of the reasons why spreads [in CMBS] are significantly wider,” Lancaster said.

“It’s not just the SIVs. It’s the absence of the leveraged buyers,” said Christopher Hoeffel, senior managing director at Bear, Stearns & Co. Inc., New York. “If credit spreads stay where they are, you may see people coming in because analysts are saying CMBS, compared to other investments, looks very attractive.”

“We need to get back to a program where we can gain the confidence of investors,” said Kieran Quinn, CMB, chairman of MBA and chairman and CEO of Column Financial Inc., Atlanta, a Credit Suisse subsidiary. “We need the investor confidence in our sector. We know what we want to do. The bad news is that it’s just going to take a little longer to come back next year. But it will come back.”

Hoeffel noted that the absence of U.S. CMBS “leaves an incredible void.” and demand will bring it back to $80 billion to $100 billion. Many industry experts agreed with this assessment at the conference. “I don’t think it’s going to come back as quickly in Europe,” Hoeffel said.

Headlines and stories from the U.S. about the mortgage market—both residential and commercial real estate—have caused fear among European CMBS investors, according to Michael Macaluso, partner at the Washington, D.C. law firm of Morgan Lewis & Bockius LLP.

Macaluso met with 20 European bankers in Frankfurt, Germany recently to discuss European CMBS and assets. The level of disinformation from U.S. events in the mortgage sector against information and standards in the European marketplace stood out to Macaluso. “In an environment like that, it’s not hard to see why the European CMBS market has completely shut down,” he said.

Macaluso said there are no problems with assets in the former Eastern bloc as asset quality generally is holding up, but the reason for a lack of financing is fear and a disconnect that has cut off trust. “I think there has been some loss of confidence,” Macaluso said. “Until that trust is restored, I think it is going to be a little choppy.”
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For example: sources of data. Different segments of the multifamily market tend to operate largely independently, meaning that developing a picture of the market in its entirety has been very difficult to achieve. The report takes a step in that direction by combining data from two sources that cover complementary segments of the multifamily mortgage origination market—MBA’s Survey of Commercial/Multifamily Finance Annual Origination Volumes and the Federal Financial Institutions Examination Council’s (FFIEC) annual Home Mortgage Disclosure Act (HMDA) data.

“By marrying these two sources we are able to better describe and understand the differences between different market segments—particularly the very small loan segment (loans of $1 million and less) and the more specialized loan segment (loans above $1 million)—and to see their combined size and scope,” said MBA Senior Director of Commercial/Multifamily Research Jamie Woodwell.

In May, MBA released a detailed summary of commercial/multifamily originations. The summary was based on a survey of 116 major originators involved in the established commercial/multifamily finance segment. The survey reported $406 billion of commercial/multifamily financings volume—an average loan size of $11.5 million and covered lenders originating loans for the CMBS market, commercial banks and savings institutions, life insurance companies, Fannie Mae, Freddie Mac, FHA/Ginnie Mae and other investor groups.

That report noted that the survey appeared to capture volumes very similar to those reported in each of those markets except for among commercial banks and savings institutions. The report concluded, “MBA’s survey is found to exclude a significant number of very small loans made by local and regional commercial banks and thrifts, but shows strong coverage of the established commercial/multifamily mortgage market.”

Under HMDA, each year lenders that meet a set of certain set of requirements must submit to the FFIEC data on the single-family and multifamily mortgage loans they make. The requirements are largely based on the firm’s single-family mortgage originations.

MBA combined these sources at the lender level. Thirty lenders were represented in both sources. In these cases, their 2006 lending volumes were taken from the MBA’s survey of annual origination volume. The MBA survey of annual origination volumes represents 68 percent of the dollar volume of multifamily lending, 23 percent of the loans and 3 percent of the lenders. The HMDA additions make up the remainder. Firms coming from the MBA survey averaged 137 multifamily loans per firm and an average loan size of $14 million. Firms added by HMDA averaged 15 loans per firm and an average loan size of $1.7 million.

The report reveals that Wachovia, Washington Mutual Bank and Deutsche Bank Commercial Real Estate as the leading multifamily lenders. On a dollar basis, Wachovia, maintaining its top position from 2005, was the largest multifamily lender in 2006, closing 1,465 multifamily loans totaling $16.1 billion with an average loan size of $11 million. Washington Mutual Bank and Deutsche Bank Commercial Real Estate made multifamily lending investments at $9.2 billion and $6.3 billion, respectively.

The report, which focuses on apartment buildings with five or more units, also indicated an average loan size of $2.7 million based on 50,959 total loan originations.

"The report shows a multifamily lending market that is broad and diverse," Woodwell said. "The 2,761 lenders profiled in the report range from large, integrated financial services firms to multifamily lending specialists to small local banks. Of these multifamily lenders, six firms closed more than 1,000 multifamily loans each, while 722 lenders (26 percent of the total) made just one loan each."

MBA's 2006 Annual Report on Multifamily Lending provides the most detailed description of the multifamily loan market and the lenders within it; tables listing all 2,761 multifamily lenders in 2006, their loan volumes and average loan sizes; information on the very small loan market (loans of $1 million or less); and the volume of very small loans made in each Metropolitan Statistical Area.

The MBA survey is available for purchase at http://store.mortgagebankers.org/ProductDetail.aspx?product_code=EC6-300012-RP-P.
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CRE CDO Delinquencies Edge Higher, Fitch Says
MBA (12/6/2007) MBA Staff

U.S. commercial real estate loan (CREL) CDO delinquencies increased slightly last month, according to the latest U.S. CREL CDO loan delinquency index from Derivative Fitch.

Derivative Fitch Senior Director Karen Trebach said though true trends are not conclusive due to the relatively small universe of loans, increased loan extensions are expected. Although there were no repurchased loans this month, two new delinquent loans contributed to a 0.15 percent U.S. CREL CDO loan delinquency rate for November compared to last month’s delinquency rate of 0.08 percent, excluding repurchased loans.

“The overall delinquency rate for CREL CDOs remains historically low and is comparable to the U.S. CMBS loan delinquency rate of 0.28 percent for October, Trebach said. “When accounting for last month’s repurchased loans, the November U.S. CREL CDO loan delinquency rate would be closer to 0.43 percent. 
 
Five loans were delinquent as of the November index. The two new delinquent loans were both whole loans, joining two other delinquent whole loans from last month. The fifth delinquent loan is a B-note position. Whole loans on transitional assets are expected to exhibit higher volatility than B-notes or mezzanine loans on stable assets, leading to a greater probability of default. Loss severities for whole loans, however, are expected to be much lower than B-note or mezzanine loans.
 
One of the new delinquencies is a multifamily loan in Texas, which is consistent with the trend seen in CMBS delinquencies. The other is a hotel loan in Florida that has fallen behind on its business plan. This trend is consistent with the trend highlighted in Fitch’s October LDI press release in which the largest percent of delinquent loans were secured by transitional hotel properties that were unable to actualize on their business plans.
 
All of the delinquent loans are from the 2006 vintage. Due to the short-term nature of the collateral in CREL CDOs, many loans in the 2006 vintage have already reached maturity and some are facing balloon defaults, which is not surprising given the difficulty associated with refinancing in today’s market. Fitch expects the asset managers to modify and extend these loans.
 
Derivative Fitch currently rates 35 CREL CDOs encompassing nearly 1,100 loans with a balance of $23.5 billion.
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The $18.173 million loan for the acquisition of Del Norte Place, a 135-unit mixed-use apartment complex in El Cerrito, Calif., provided a fixed to float 10 + 1-year term and a 10 year interest-only structure. As part of the acquisition, existing bonds were defeased.

The property has a continuing affordability agreement that requires 20 percent of units be leased to families earning less than 50 percent of the area median income at the 50 percent AMI rent levels, according to, according to Bryan Frazier, president of Sierra Capital Partners.

Del Norte Place includes access to the BART light rail station with stops ranging from downtown Berkeley to San Francisco. It was built in 1992 and consists of four buildings, each including first floor retail space.

The property offers one and two bedroom models with nine floor plans. Unit amenities include carpet, linoleum flooring, contemporary vertical or mini blind window treatments, dishwashers and garbage disposal. Each unit has a patio/balcony with storage closet. Common amenities include first floor retail marketplace, fitness center, indoor jacuzzi and conference/recreation room.

Sierra Capital also closed on $8.58 million in supplemental financing for two separate apartment properties totaling 733 units in southern California. The supplemental loans are coterminous with the first mortgages and provide for interest only payments to enhance the borrowers cash flow, according to Frazier. “The borrower was able to retrieve a significant amount of equity for future investments at a very low supplemental fixed interest rate,” he said.

Casa Del Sol Apartments—with 448 units—and The Village at Heritage Place at 291 units, are in Orange County, within one mile from the beach. The property consists of unit and common amenities that include fireplaces, a fitness center and pool. Village at Heritage Place consists of a computer/business center, a pool with three heated spas and gated subterranean parking.
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"MBA is very fortunate to welcome Sarah as the new vice president of public affairs," said MBA President and CEO Jonathan Kempner. "Her accomplished blend of experience in public affairs and the political world will prove to be an invaluable asset as we continue to communicate on behalf of our members and the broader industry."

Previously, Tinsley Demarest served as deputy to the United States Ambassador to the United Nations, John Bolton, where she was an advisor on national security matters, policy development, communications and executive planning for the President's Permanent Representative to the U.N. She was also responsible for developing public affairs strategies and coordinating interagency policy review of U.S. priorities at the U.N. She also served as a spokesperson for Bolton before national and international media.

Prior to this position, Tinsley Demarest served as senior advisor to the Undersecretary of State for Arms Control and International Security. In this role, she represented the Undersecretary with non-government organizations, multilateral organizations and the media. She has more than 20 years of experience in public and congressional affairs and policy development for the U.S. Department of State, the U.S. Agency for International Development and the International Foundation for Electoral Systems.

Tinsley Demarest earned her bachelor of arts degree at Skidmore College and a masters of business administration from the Dominican University of California.
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CREF Convention/Expo Feb. 3-6
MBA (12/6/2007) Roundy, Alicia

The Mortgage Bankers Association’s Commercial Real Estate Finance/Multifamily Housing Convention Expo, Feb. 3-6, 2008 in Orlando, Fla.

The CREF/Multifamily Housing Convention & Expo 2008 is the place to do business. In an industry that remains steady, business transactions need to be seamless and timely. This event is your source to help you work smarter and faster in today's ambiguous market climate. By attending the largest industry convention, you are sure to network with colleagues from across the commercial real estate industry and experience how MBA is your first stop to help your bottom line. The earlier you register, the better.

"The CREF Convention understands that to conduct business in today's market requires access to the latest products, services and every capital source in the industry including debt and equity," said James Murphy, CMB, CRI, principal with Q10|New England Realty Resources and former MBA chairman.

The CREF General Sessions include a presentation from Jeffrey Newman, partner with Sills Cummis Epstein & Gross, on Enhancing Your Negotiating Techniques. This session focuses on the psychological and emotional elements of negotiation as well as discusses many of the proven "substantive" techniques of effective negotiating.

Newman presents a variety of real-life issues for discussion, analysis and resolution. Attendees are urged to provide more effective input in discussing techniques to enhance negotiating skills with the client and vis-à-vis the adversary. Techniques offered will enhance effectiveness in individual salary negotiations, perhaps the most difficult of all negotiations.

CREF also features presentations from MBA Chairman Kieran Quinn, CMB, chairman and CEO of Column Financial Inc. (a Credit Suisse company); MBA Chief Economist Doug Duncan; and MBA Senior Director of Commercial/Multifamily Research Jamie Woodwell.

CREF also hosts two events that participants have come to expect and enjoy: the MBA Tailgate Party in the Expo Hall and Bank of America’s Official Super Bowl Party on Sunday, February 3. Who will be the next Super Bowl champion? Enjoy a super-sized menu of fun, including food and drinks, large-screen televisions—even tailgating.

Key registration and hotel deadlines are approaching. For more information, visit the CREF Web site at http://events.mortgagebankers.org/cref2008/default.html.
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Path to Diversity Scholarship Application Deadline Dec. 12
MBA (12/6/2007) Roundy, Alicia

The application deadline for CampusMBA’s Path to Diversity Scholarship Program is Wednesday, December 12.

As the face of America changes, so must the face of the mortgage banking industry. CampusMBA, the education arm of the Mortgage Bankers Association, works to achieve positive change through education. With MBA and numerous partners and sponsors, CampusMBA offers the Path to Diversity Scholarship Program to encourage entrance and advancement in the field of real estate finance.

Educational scholarships from CampusMBA offer employees from culturally diverse backgrounds the ability to advance their professional growth and career development. Several times a year, CampusMBA awards Path to Diversity scholarships to top candidates, based on essays and letters of recommendation, as decided by its Scholarship Award Task Force.

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“The IRP is an important tool for disseminating information to stakeholders of CMBS transactions,” said David Shay, director of strategic initiatives at Wachovia Securities Real Estate Services, Charlotte, N.C., and co-chair of the MISMO CMSA-IRP Workgroup. “Excel was originally chosen as the reporting medium for the IRP because its ubiquity throughout the industry facilitated the flow of CMBS information. Given the increased use of XML, a more efficient and flexible reporting medium than Excel, it is time to migrate to this method of delivering information since it will allow servicers to efficiently provide more information to CMBS stakeholders.”

The IRP is a standardized set of bond, loan and property level information provided for all CMBS securitizations. The CMSA initially developed the IRP in the late 1990’s because of information inconsistencies throughout the CMBS market.  The IRP established a set of reporting standards that allows investors to compare different investments or securitizations across the same set of factors. 

The CMSA’s IRP Committee is responsible for updating and revising the IRP so that it continually meets the needs of the CMBS market. MISMO’s CMSA IRP Workgroup is working closely with the IRP Committee to ensure that the conversion from Excel to XML does not change the content of the report. MISMO and CMSA agreed in 2005 to work together to migrate the industry-standard IRP to XML. MISMO formed a dedicated CMSA IRP Workgroup to work on this conversion, and is scheduled to roll out the new XML version of the IRP in 2008.

Kathleen Olin, vice president of special servicing at CW Capital Asset Management, Boston, and co-chair of the MISMO CMSA-IRP Workgroup, described the path firms in the CMBS market need to follow in 2008. “This will be a year of change for servicers, trustees and investors. In February 2008, the industry will begin using Version 5.0 of the IRP, which will be the last version in Excel format. And while the final conversion date to the XML version of the IRP has not yet been determined, firms will be busy changing their processes and technologies in order to operate in an XML environment.”

The migration of the IRP to XML is part of a larger, industry-wide trend towards improved electronic communications. Firms have become more “electronic” and are increasing their use of electronic documents and other technological solutions. While technology is not viewed as any sort of “silver bullet” in curing inefficiencies, sophisticated managers recognize it as one part of the overall solution. XML is a key technology because it provides a far cleaner way to produce and consume reports containing data than older technologies in extensive use today. It accelerates processes and reduces errors. And when XML is combined with the set of MISMO standards, users find they only have to map their databases once (to the standard) in order to achieve re-use across multiple customers. This has been the experience of those firms that have already implemented the initial MISMO standards, and more of the same is anticipated.
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“It’s already set in motion unless you want to do a Katrina-like bailout,” said Thomas Zimmerman, managing director at UBS Investment Bank, New York, speaking here this week at the Office of Thrift Supervision's National Housing Forum. He said there is very little that can be done at this point to increase capital flow stemming from a liquidity crisis that started in June, hit a crisis point in August and then tightened again last month. Other than a “quick fix” of an estimated $100 billion, the process would likely take up to 24 months to work itself out, he said.

“With regard to commercial real estate, the issue there is really with liquidity…unless there is a recession, they are likely to fall by only 10 percent,” said Michael O’Hanlon, senior managing director at Marathon Asset Management LLC.

O’Hanlon noted, however, that pricing spreads on real estate loans have widened out “tremendously, and if you can’t get more money, that drives toward more defaults.”

Martin Lanigan, president and CEO of Mezz Cap, New York, said the bad news is that investors purchased subprime loans, lost money within the investment world and have now pulled back. "It's pure obstruction," Lanigan said. "If you're in the subprime world, you want to blame the whole market...There is no question that the residential market is going to suffer from real, legitimate pain. But in the commercial world, we have job growth, we have low unemployment, we have good productivity, GDP is still positive and we don’t have construction overhang anymore….The difference is that the [investors] buying right now have lost money [in subprime] and once bitten, [twice shy]. So they’ve all stepped back. The world has become more expensive for everybody.”

Historically, bad real estate recessions had dramatic construction overhang, which is not the case in commercial real estate today, according to Lanigan. “It doesn’t happen anymore,” he said. “We corrected it.”

However, no news is good news for the CMBS market today and bad news on the front page leads to repricing the next day. "If it returns to normalcy, the world will be fine," Lanigan added. "If it doesn't return and business just doesn't happen, that's going to hurt."

Zimmerman, who estimated a 15 to 20 percent housing decline, said that investors, in commercial and residential, are looking into synthetic asset-backed securities—the ABX index—while not factoring in the possibility of a recession. “I think we are far away from realizing just how bad this can be,” Zimmerman said. In addition to synthetic CMBS—the CMBX index—the ABX index also includes credit cards, student and auto loans.

O'Hanlon noted that subprime auto loans are now having issues not just because of credit but based on difficulty in receiving financing from Wall Street. “There will be less lending against it,” O’Hanlon said.

"People who weren't in our business are buying now," Lanigan said. "If you're not already in long real estate, you want to get long real estate. If you're long in real estate and have mark-to-market sensitivity, which many times does not always correlate to your fundamental risk,” then investors could go short. They purchased deals that could turn out to be very good investments, but they had to mark them off—unrealized and uncapped, according to Lanigan.

"So that's part of it," he added. "When people get back to collateral they'll develop comfort but until they really believe that, they will still use that [newspaper] headline to backward somebody. [Leveraged investors] are not going to pay out. [They] don’t have to."

Solutions to the liquidity crisis, including a Bush Administration proposal announced this week by Treasury Secretary Henry Paulson Jr., would have mortgage bankers and investors place a three-to-five year freeze on subprime adjustable-rate mortgages from resetting for borrowers who have certain owner-occupied homes.

“The solution is going to be a multi-pronged one,” said OTS Director John Reich.

Meanwhile, some industry analysts suggested something that would resemble a Resolution Trust Corp. bailout scenario from the savings and loan crisis in the late 1980s. The last liquidity crisis, in 1998, involved the Federal Reserve bailing out Long Term Capital Management, a hedge fund manager that incurred losses not seen from a hedge fund until the Bear, Stearns subprime hedge fund collapsed in July.

Hedge funds—including global macroeconomic hedge funds—are not regulated by the Securities and Exchange Commission, unlike mutual funds or other investment vehicles. They leverage assets and liabilities through derivatives that could include long term investments and “short-selling,” and could be a benefit for its investors if the hedge fund “short sells” a market and the market worsens. For example, negative newspaper headlines can exacerbate a crisis in residential or commercial real estate and profit hedge fund investors who short sell the real estate markets and other hedge fund investors buy short.

According to Liquidity, Monetary Policy and Financial Cycles, a paper presented in September by Tobias Adrian of the New York Federal Reserve and Hyun Song Shin of Princeton University, long-only investors can passively accept a hit to their net worth, but leveraged investors actively scale back lending to keep their capital ratios from falling. For example, a bank that targets a constant capital ratio of 10 percent needs to shrink its balance sheet by $10 for every $1 in credit losses, all else being equal.

Analysts at Goldman Sachs, New York, estimate losses of $300 to $400 billion in the subprime market and, if so, macroeconomic implications could find leveraged investors shrinking their balance sheet to $200 billion out of the $400 billion aggregate credit loss in subprime, in which case they might need to scale back their lending by $2 trillion, according to Adrian and Shin’s calculations.

Rod Dubitsky, managing director at Credit Suisse First Boston's New York office, said transparency is an issue for investors, but the level of disclosure at the residential market level is more data than anywhere in the world.

“If it was bad in the residential market, then it is not better in any other market” and investors were late in adjusting, Dubitsky said, adding that "50 different countries with 50 different regulatory regimes" made it a matter of trusting the ratings agencies. “Once you create this new process,…it’s cheap capital, done and let’s do more of this stuff,” he said.

According to Adrian and Shin: "Consider a fall in the price of an asset held widely by hedge funds and banks. Then, the net worth of such an institution falls faster than the rate at which asset falls in value. The leverage of the bank or hedge fund thus increases. If a bank is targeting procyclical leverage, it must attempt to reduce leverage in some way, sometimes quite drastically. How can it do so? One way it can accomplish this is to sell some of its assets, and use the proceeds to pay down its debt."

Last month, the Financial Times reported that Lahde Capital, a Santa Monica, Calif. hedge fund set up last year by Andrew Lahde, passed the 1,000 percent mark, after fees, following November's credit market turmoil. The fall in the value of subprime-linked securities boosted a group of funds that spotted the problems in advance. John Paulson’s New York-based Paulson & Co. (no relation to the Treasury secretary), the largest of the group, with $28 billion under management, made $12 billion profit from the trade already, FT reported.

“This was a money-making machine. This was a real killer app,” said Ron Insana of Insana Capital Partners, Fort Lee, N.J. “It’s almost a philosophical debate. Do we let that machine break? Do we swing the pendulum between fear to greed and greed to fear?”

Analysts said some investors could scale back gradually, with some offsets including reduced credit demand and increased lending by other sectors, but the drag on economic activity could be substantial.
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