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“They had real estate portfolios in 40 percent of the general accounts. They have since brought that down to 10 [percent] to 20 percent. They had risk-based capital problems. They had surplus-ratio problems. Subsequent to that, they started tagging their underwriting, they started focusing on servicing and they started pricing for risk. So, when the conduits went down, the life insurance companies were gloating." —Adrian Corbiere, executive vice president and partner at Cohen Financial.

MBA Survey: Credit Markets, Economy Add Pressure to Commercial Mortgage Performance
Kashkari: Financial Markets ‘Stabilizing’
Long-Term Memory Stalls Risk-Averse Life Companies

Capital Markets Crisis Disconnects from Real Estate
On Defensive, Rating Agencies ‘Here to Stay’

Beige Book: Tight Credit Pulls Down CRE Fundamentals
Delinquency Trends Continue for CMBS in November
Survey: Commercial Lending Just Under Half of Loan Portfolios

Live Oak Capital Arranges $7M for Office Pavilion

MBA Annual Report on Multifamily Lending
Hotel, Registration Deadlines Near for MBA's CREF
Registration Open for CampusMBA’s Principles of Property Insurance LIVE Online Workshop

Cotton Steps Down from Centerline Holding Co.

Commercial Lenders 'Demorph'

"The frozen credit markets and deteriorating economic conditions are placing increased pressure on the performance of commercial and multifamily mortgages," said MBA Vice President of Commercial Real Estate Research Jamie Woodwell. "Commercial and multifamily mortgages have not seen the same kind of deterioration in performance witnessed among other real estate loans, and at the end of the third quarter, delinquency rates for every investor group remained at the lower end of their historical ranges. That being said, delinquency rates for nearly every investor group did see increases during the third quarter, and economic and credit market stress is likely to continue that trend."

Between the second and third quarters, the 30+ day delinquency rate on loans held in commercial mortgage-backed securities rose 0.10 percentage points to 0.63 percent. The 60+ day delinquency rate on loans held in life company portfolios rose 0.03 percentage points to 0.06 percent. The 60+ day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.05 percentage points to 0.16 percent. The 60+ day delinquency rate on multifamily loans held or insured by Freddie Mac fell 0.02 percentage points to 0.01 percent. The 90+day delinquency rate on loans held by FDIC-insured banks and thrifts rose 0.20 percentage points to 1.38 percent.

The MBA analysis looks at commercial/multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities, life insurance companies, Fannie Mae and Freddie Mac. Together these groups hold more than 80 percent of commercial/multifamily mortgage debt outstanding.

The analysis incorporates the same measures used by each individual investor group to track the performance of their loans. Because each investor group tracks delinquencies in its own way, delinquency rates are not comparable from one group to another.

Based on the unpaid principal balance of loans, delinquency rates for each group at the end of the second quarter were as follows:

• CMBS: 0.63 percent (30+ days delinquent or in REO);
• Life company portfolios: 0.06 percent (60+days delinquent);
• Fannie Mae: 0.16 percent (60 or more days delinquent)
• Freddie Mac: 0.01 percent (60 or more days delinquent);
• Banks and thrifts: 1.47 percent (90 or more days delinquent or in non-accrual).

To put these numbers in context, of 35,135 commercial/multifamily loans in life company portfolios, with a total unpaid principal balance of $253 billion, only 36 loans with an aggregate UPB of less than $144 million were 60+ days delinquent at the end of the quarter. Of $1.2 trillion of commercial/multifamily mortgages at FDIC-insured banks and thrifts, only $18 billion was 90+ days delinquent.

To view the report, please visit the following Web link:
http://www.mortgagebankers.org/files/Research/CommercialNDR/3Q08CommercialNDR.pdf.
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Kashkari: Financial Markets ‘Stabilizing’
MBA (12/11/2008) Sorohan, Mike

WASHINGTON, D.C.—Treasury Interim Assistant Secretary for Financial Stability Neel Kashkari told participants at the Mortgage Bankers Association’s Commercial/Multifamily Capital Markets Winter Conference that the federal government has made “significant progress” in stabilizing the financial markets since launching a number of new programs.

“We at Treasury have responded quickly to adapt to events on the ground,” Kashkari said. “Throughout the crisis, we have consistently acted with the following three critical objectives: one, to stabilize financial markets and reduce systemic risk; two, to support the housing market by avoiding preventable foreclosures and supporting mortgage finance; and three, to protect taxpayers. The authorities and flexibility granted to us by Congress have been essential to developing the programs to meet these objectives.”

Kashkari has been a point man in Treasury’s efforts to corral the extraordinary instability that has gripped the economy for the past year—and the housing market before that. Since September, Treasury has taken conservatorship of Fannie Mae and Freddie Mac and begun distribution of $700 billion through the Troubled Asset Relief Program and the Capital Purchase Program, aimed at stabilizing the financial system by increasing capital in banks.

Reaction to Treasury’s programs has been mixed. Proponents give Treasury credit for reacting quickly to changing conditions and infusing capital at key flashpoints; others, particularly members of Congress, have criticized Treasury for asking for too much authority and for providing too little oversight of capital infusions.

Last week the Government Accountability Office issued a report, TARP: Additional Actions Needed to Better Ensure Integrity, Accountability and Transparency (http://www.gao.gov/new.items/d09161.pdf), that sharply criticized Treasury for “lax oversight” of TARP, saying that Treasury is unable to account for how money injected into financial institutions is being spent. The House Financial Services Committee holds a hearing on the GAO report this Wednesday.

In his remarks (http://www.ustreas.gov/press/releases/hp1314.htm), Kashkari acknowledged that results of the Capital Purchase Program will be “difficult to assess immediately,” but expressed confidence that the program has succeeded in stabilizing markets now than before Congress authorized the measure.

“I cannot think of an example where a program of this scale and complexity has been launched and executed as quickly and as effectively as the Capital Purchase Program—in either the public or private sectors,” Kashkari said. “Before we launched this program in October, we were at a tipping point. Credit markets were largely frozen, denying businesses and consumers access to vital funding and credit. Financial institutions were under extreme pressure, and investor confidence in our system was dangerously low. A number of institutions had failed or been re-structured.”

Throughout the crisis, Kashkari said Treasury encouraged financial institutions to raise capital and to recognize losses. “However, as markets continued to deteriorate, it was clear to Secretary [Henry] Paulson [Jr.] that we needed to use the authority and flexibility granted by Congress as aggressively as possible to quickly stabilize the system,” he said. “And we believed that purchasing equity in healthy banks would be the fastest and most effective way to inject much-needed capital to the financial system and restore confidence and the flow of credit.”

In the two months since TARP’s implementation, the CPP has “gone from an idea to a fully functioning program,” Kashkari said. “We started from scratch, recruited and built a world class team, designed the program details, hired necessary outside vendors and implemented a complex, but efficient processing model: Applications are submitted to and reviewed by regulators. They recommend them to Treasury, where we review them before a final decision is made. And numerous transaction agreements are processed for each investment before it is funded. In just under two months, the CPP has achieved operational speed and quality that few government or private sector programs have ever reached. And our program is becoming more efficient each day.”

Kashkari noted that the next Administration will likely consider another economic stimulus package, as early as January. Additionally, Treasury is reportedly working on a plan to reduce some mortgage rates to as low as 4.5 percent to encourage home buying.

“The Capital Purchase Program was designed to first stabilize the financial system by increasing the capital in our banks, and then to restore confidence so credit could flow to our consumers and businesses,” Kashkari said. “As we have seen throughout this crisis, the loss of confidence in and between financial institutions can happen with lightning speed and with devastating effects. Increasing capital levels helps banks retain the confidence of depositors, investors and counterparties alike.”
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Long-Term Memory Stalls Risk-Averse Life Companies
MBA (12/11/2008) Murray, Michael

WASHINGTON, D.C.—Life insurance companies turned conservative in funding commercial real estate during the second half of this year despite recent history of extraordinarily low delinquencies.

“All of a sudden, they’ve gone dark,” Adrian Corbiere, executive vice president and partner at Cohen Financial, Chicago, said here at the Mortgage Bankers Association’s Commercial/Multifamily Capital Markets Winter Conference. “They’ve gone into their foxholes.”

John Davis, executive vice president at Grandbridge Real Estate Capital LLC, Charlotte, N.C., said Fannie Mae and Freddie Mac added liquidity to the multifamily market, accounting for nearly 55 percent of Grandridge’s business—mostly in Fannie Mae Delegated Underwriting and Servicing.

“For multifamily, it’s been a good story,” Davis said.

Grandbridge also had more business with banks this year than in other years, primarily community and regional banks, but Davis said life company investment was “somewhat schizophrenic.”

Corbiere said life insurance companies employed a “3-D” strategy—de-leveraging, de-risking and declining—which includes not growing portfolios and not trying to refinance maturing deals.

“They don’t want to refinance deals if they don’t have to,” Corbiere said. “They want them to pay off.”

Life companies could have concerns about risk-based capital because of the mortgage experience adjustment factor from low delinquencies, he added.

“It’s ironic because they’ve had such extraordinary delinquency experience in the past eight to 10 years,” Corbiere said. “Because of that good experience, they may have a risk-based capital issue.”

Life companies, like other companies holding assets on a balance sheet, face mark-to-market accounting issues after purchasing commercial mortgage-backed securities.

Life insurance sales slowed and property and casualty companies took a hit from Hurricane Ike this year. Now, with a risk-averse strategy, life insurance companies could reduce commercial real estate investments by more than half in the next year.

“If we see 50 percent off from what they did this year, we’ll be fortunate,” Corbiere said.

Corbiere noted that life companies reinvented themselves in the 1990s following an overexposure to commercial real estate.

“They had real estate portfolios in 40 percent of the general accounts,” Corbiere said. “They have since brought that down to 10 [percent] to 20 percent. They had risk-based capital problems. They had surplus-ratio problems. Subsequent to that, they started tagging their underwriting, they started focusing on servicing and they started pricing for risk. So, when the conduits went down, the life insurance companies were gloating.

“Life insurance companies do have a long memory,” Corbiere added.
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"Some of it's justified, and some of it is just [investors] being shell-shocked because everyone has been beaten up because of where spreads have gone," said Christopher Hoeffel, managing director at Investcorp International Inc., New York, here at the Mortgage Bankers Association's Commercial/Multifamily Capital Markets Winter Conference. "Independent of performance, pricing has gone out of control, liquidity has been sapped out of the market and people are sitting there saying don't take my bonds away."

"We have a broken financial system," said Mark Finerman, managing partner, LoanCore Capital. "At some point, that creates defaults. This is bigger than us. You pick up the paper everyday and read about another industry that can't survive any longer because the financial system doesn't work.

Brian Lancaster, CIO in the real estate division of Wachovia Capital Markets, Charlotte, N.C., said investor confidence still wanes with the ratings agencies.

"We have to fix the ratings agencies. I don't think, with the SEC, that is in place yet," Lancaster said. "That is the key piece to the puzzle for restoring investor confidence if [investors] see a triple-A—and, obviously, transparency...it is a key part and a big challenge."

The Federal Reserve, through its Term Asset-Backed Securities Loan Facility, or TALF, would support issuance of asset-backed securities collateralized by student loans, auto loans, credit card loans and loans guaranteed by the Small Business Administration, but whether it will include commercial mortgage-backed securities remains in question.

"TALF is edging in that direction with the ability to purchase [securities]," Lancaster said.

However, trillions of dollars in over-the-counter derivatives remain on balance sheets and compound investor skittishness.

"The leverage that was increased through the derivatives is obviously a real problem," Finerman added. "It is part of what created the mess we are in."

"I do believe in the central clearinghouse in that," Lancaster said. "To me, the way it is set up now, it's like a set of cheap Christmas lights. If one bulb goes out, the whole line goes down."
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On Defensive, Rating Agencies ‘Here to Stay’
MBA (12/11/2008) Murray, Michael

WASHINGTON, D.C.—The Securities and Exchange Commission’s rules released this week for rating agencies reinforced their relevance, but some industry experts said rating agencies need a mechanism to increase second and third-tier investor confidence for future liquidity in the commercial mortgage-backed securities market.

Warren Friend, managing director at Morgan Stanley, New York, said a regulatory authority for ratings agencies can serve the same purpose as state regulators that review insurance companies.

“We don’t have a regulatory system that gives credibility to the ratings agencies like we have in the financial services business,” Friend said here at the Mortgage Bankers Association’s Commercial/Multifamily Capital Markets Winter Conference. “There was none of that. At the end of the day, the ratings agencies are sitting out here trying to solve the problem themselves and getting nobody to step up and say, ‘We’ve reviewed it, it’s good,’ and put some credibility behind it.”

“And, in fact, just the opposite is happening,” said Kim Diamond, managing director and practice leader for North American CMBS and now residential MBS at Standard & Poor’s,  New York.

“That’s right,” Friend replied. “It’s become a witch hunt instead.”

In June 2006, rating agencies became regulated under the Credit Rating Agency Reform Act. The SEC released new rules this week that did not designate any new or unique symbols for ratings agencies to use in CMBS but reinforced transparency and separation of fee discussions from determinations.

“More and more market participants are coming to the conclusion that ratings agencies are, in fact, an essential part of the equation, including the SEC and other governmental entities,” Diamond said. “For all of the criticism we have received, everyone is recognizing—at least at this point—that we are very deeply entrenched in the investment charters and the entire process of this business."

Diamond said the market needs an independent arbiter to render opinions that provide investors one tool to analyze risk and have comparability across different securities and different deals. "Right now, for better or for worse, there is really no viable alternative," she said. "That’s not to say that in the future there won’t be and that’s something that the ratings agencies need to be cognizant of. There are, potentially, opportunities for alternatives to play that role going forward but, right now, it’s very clear that the ratings agencies are here to stay.”

Diamond said S&P performs more “what if” scenarios to test resiliency of ratings and provides investors insight to trigger rating changes.

“Fundamentally, at the end of the day, we need to make sure that the ratings are right—that they really reflect what I believe is the right place for them to be,” Diamond said. “We need to make sure that they are not overly aggressive and, truthfully, in my opinion, [it would be] equally bad for them to be overly draconian.”

Friend downplayed any conflict of interest with issuers paying privately owned rating agencies to make rating decisions and placed the burden more with regulators.

“The problem has not been paying the agencies. I believe the regulator has half-knowledge of what is going on in this business with residential and commercial securitization,” Friend said. “They have no clue as to how much money is being charged by the ratings agency. They had no clue about how these structures worked. I believe with that lack of knowledge, it is a serious problem.”

Friend noted that in discussions with an SEC regulator, it was believed that fees factored into higher ratings for subprime loans. The regulator associated costs for rating a subprime loan as higher than or comparable to commercial deals even though they were much less.

“The difference was huge,” Friend said. “It was $75,000 for a subprime residential deal versus $1 million for a commercial transaction, and he was flabbergasted.”

Despite the differences, in its 2007 annual report, McGraw Hill—Standard & Poor’s parent company—showed earnings primarily from its ratings agency.

“My point here is it’s not whether the investor or the originator is paying the fee. I believe that part of the equation has been a small part,” Friend said. “It’s understanding how these structures work and having regulators paying attention to it. The problem there should have been somebody doing actual regulation and putting some credibility to the rating agencies.”
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A Virginia and Carolinas banker noted "continued deterioration" in the financial portfolios of his clients—particularly consumer-related businesses—while other district contacts reported "generally stable credit quality."

Landlord concessions, including free rent and tenant improvements, increased in Washington, D.C., Norfolk, Va., Charlotte, N.C. and Greenville, S.C., contacts reported. Agents in Baltimore, Md., Richmond, and Raleigh, N.C., noted an uptick in broker incentives.

Retail vacancy space increased in Richmond—Circuit City's headquarters—and Columbia, S.C. Office and industrial space also increased in Raleigh and Charlotte, respectively.

Financing costs and availability further concerned developers in the Chicago district with reports of project delays and cancellations for public works, office, retail and industrial construction.

The Dallas district's commercial investment market "ground to a halt" as lenders were unwilling or unable to lend and investors were unwilling to take on risks, the Beige Book said.

San Francisco district contacts reported limited investment in new commercial properties—partially based on credit access constraints—as commercial and industrial loan demand continued with sharp drops in some areas.

Credit standards tightened for commercial real estate loans in the St. Louis district. Third quarter industrial vacancy rates in St. Louis and Memphis declined during the second quarter, while Louisville's office and industrial vacancy rates increased.

Little Rock's industrial vacancy rates increased and its suburban office vacancy rates dropped with St. Louis and Memphis. Downtown office vacancy rates also fell in St. Louis and Memphis but increased in Louisville and Little Rock.

St. Louis contacts reported concerns about credit market conditions and "sharply" slowing interest for new projects throughout the District.

A Louisville contact, however, said industrial developers were "cautiously optimistic about the fourth quarter." A Little Rock industrial construction contact reported steady activity and that, because of upcoming construction of several facilities related to wind energy, the outlook is positive.
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Delinquency Trends Continue for CMBS in November
MBA (12/11/2008) Murray, Michael

Citigroup Global Markets, New York, reported loan delinquencies in commercial mortgage-backed securities increased by 17 basis points this month after a revised 12 basis-point rise last month. The November rate was up nearly 0.5 percent since the end of 2007 to 0.86 percent—0.95 percent excluding defeased loans—with much of the increase coming from two new large 30-day delinquent loans.

Lack of new supply, leading to a net run-off of outstanding balance, contributed to the rise in headline delinquency rates, as current pace of increases remains similar to the last recession. As this recession continues, Citigroup Global Markets research expects delinquency rates could rise to 1 percent by the end of the year and then to the 2 percent to 3 percent through 2009-2010, said Darrell Wheeler, managing director at Citigroup Global Markets Research.

The Promenade Shops at Dos Lagos increased retail delinquencies to 0.74 percent from 0.58 percent, taking California's rate up to 0.26 percent from 0.10 percent. The Westin Portfolio, with hotels in Tucson, Ariz. and Hilton Head, S.C., increased hotel delinquencies to 0.82 percent from 0.50 percent, increasing Arizona delinquencies to 0.62 percent from 0.29 percent and North Carolina to 0.40 percent in November from 0.21 percent in October.

The multifamily sector also showed dramatic increases in November, rising to 2.39 percent from 1.82 percent.

"We recently wrote about the issues facing apartments under rent controls that were aggressively underwritten assuming conversion rates that have not materialized," Wheeler said.

The Atlantic region, including 22.4 percent of the universe, showed notable increase to 0.99 percent from 0.76 percent.

"Florida and Nevada each showed large increases at the individual state level, which is not surprising given their struggles in the housing market, while Michigan delinquencies remain elevated at 2.92 percent as the domestic auto sector continues to struggle," Wheeler said.
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Survey: Commercial Lending Just Under Half of Loan Portfolios
MBA (12/11/2008) MBA Staff

Ninety-eight percent of financial institutions responding to a survey said they continue to offer both commercial real estate and commercial and industrial loans, although such loans represent less than half of their loan portfolios.

Nearly 700 financial institutions responded to the survey, conducted by Wolters Kluwer Financial Services, Minneapolis. On average, commercial loans represented 46 percent of respondents’ loan portfolios.

“While those numbers may have changed because of recent credit market conditions, they do illustrate the overall importance of commercial lending as a line of business for financial institutions and as a significant percentage of their loan portfolios,” said Ken Newton, executive vice president of banking at Wolters Kluwer.

The survey said 70 percent respondents used a software product or service to document commercial loans while 40 percent used an outside service, including those provided by attorneys.

Newton a key reason financial institutions implement new technology to document commercial loans is the “numerous benefits” automation presents, including lower cost and faster documentation, as well as more thorough compliance with an increasingly complex set of regulatory requirements.
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National Integrity Life Insurance Co. (Eagle Realty), Goshen, N.Y, provided the $7 million loan for SASL LLC in Houston. John Fenoglio of Live Oak Capital coordinated the financing.

Live Oak Capital services the loan as a correspondent for Eagle Realty. 

Office Pavilion, built and completed this month on an 8.52-acre site, has an 83,200 square-foot one-story distribution building and a 24,848 square-foot two-story office building with a total net rentable area of 108,048 square feet. 

The building is configured as a single-tenant furniture warehouse, showroom and distribution facility with office space. Office Pavilion is the exclusive distributor for Herman Miller office furniture products in the Houston area. 

The deal was Live Oak Capital’s latest, before an announcement that it was acquired by Grandbridge Real Estate Capital LLC, Charlotte, N.C.

Grandbridge Real Estate Capital, the commercial mortgage banking subsidiary of Branch Banking and Trust Co., announced it plans to purchase Live Oak Capital. Grandbridge holds a $22.5 billion servicing portfolio representing 100 capital providers. Live Oak Capital specializes in debt and equity placement and loan servicing.
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The report analyzes data from the MBA 2007 Commercial Multifamily Annual Origination Volume Summation and the Home Mortgage Disclosure Act. This report is the most comprehensive view available of the multifamily lending market and includes:

• A detailed summary of the $148 billion multifamily market,

• Profiles of distinct market segments, including the very small loan (loans of $1 million or less) segment,

• A listing of 2,739 lenders who made multifamily loans in 2007, including their lending volume, number of loans made and average loan size, and

• A listing of metropolitan areas and the volume of very small loans made in each in 2007.

To purchase the report, which is available in electronic format only, please visit the following Web link: http://store.mortgagebankers.org/ProductDetail.aspx?product_code=EC6-300015-RP-P.
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Hotel, Registration Deadlines Near for MBA's CREF
MBA (12/11/2008) Royer, Denise

Register for the Mortgage Bankers Association's Commercial Real Estate Finance (CREF)/Multifamily Housing Convention & Expo by January 9, 2009 and take advantage of significant savings on hotel and registration fees.

MBA’s CREF Convention & Expo 2009, taking place February 8-11 at the Manchester Grand Hyatt San Diego, is the place for business in a new market. Get the latest information on the issues shaping and influencing the industry. Ongoing networking opportunities allow you to exchange ideas with your peers.

Download the brochure for convention and session information or go to http://www.mortgagebankers.org/files/conferences/pdf/M2902016_brochure.pdf.

With a market meltdown, a shifting investment model and unprecedented legislative and regulatory actions, today’s business climate is unlike anything the industry has seen.

The evolving events affecting the credit and capital markets have contributed to extraordinary business challenges for commercial/multifamily real estate finance.

In order to stay on top and serve clients in the most effective manner possible, current industry information is critical and the CREF Convention offers unrivaled access to key industry leaders, CEOs and expert panelists. Participants receive an insider’s grasp of the most current strategies to address the vast market changes.

The CREF Convention & Expo 2009 is the industry’s largest convention and your participation this year is more important than ever for your business, your career and your industry.

Attend the preeminent industry convention and network with colleagues from across the commercial real estate finance markets and learn how MBA is your one stop for up-to-the-minute information and analysis related to this unprecedented market downturn.

If you have not registered for CREF 2009, now is your time to do so. It is the largest annual event for commercial/multifamily real estate finance professionals.

Click here for more information and to register for MBA's CREF Convention & Expo or go to http://events.mortgagebankers.org/CREF2009/default.html.
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Registration Open for CampusMBA’s Principles of Property Insurance LIVE Online Workshop
MBA (12/11/2008) Royer, Denise

The Principles of Property Insurance LIVE Online Workshop, presented in partnership by CampusMBA—the education division of the Mortgage Bankers Association—and Stamford, Connecticut-based Insurance Advisors LLC, will take place Wednesday, January 14, from 2:00-3:15 p.m. ET.

The 75-minute program is the second in the Commercial Insurance LIVE Online Workshop series. The series presents a unique opportunity to get the training you and your staff need without incurring travel costs.

The Principles of Property Insurance LIVE Online Workshop is intended for commercial servicing staff and loan originators who need to learn the essentials of property insurance and its relation to imperative facets of the commercial real estate businessworld.

Expert speakers feature: Bernard Brown, president of Insurance Advisors LLC; Meribeth Fisher, transactions manager at Insurance Advisors LLC and Kevin Madden, managing director at Aon Real Estate Practice.

Attendees of the Principles of Property Insurance LIVE Online Workshop learn the following, right from the comfort of their own workspace:
• Key definitions and terms such as coinsurance, agreed amount, replacement cost and actual cash value
• Key property insurance forms and how to differentiate basic, broad and special
• How to assess important exclusions found in property insurance policies
• Premiums: how to calculate and escrow them
• How to apply and file property insurance claims
• How to project current and future market conditions and coverage for 2009

Click here to register and learn more about the Principles of Property Insurance LIVE Online Workshop, go to http://www.campusmba.org/products/default.aspx?product_code=E2901716E/REGIS

Click here to learn more about the other Commercial Insurance LIVE Online Workshops offered by CampusMBA and Insurance Advisors or go to http://www.campusmba.org/ProductsbyFormat/Instructor-ledCourses/LIVEOnlineWorkshops/CommercialInsuranceLIVEOnlineConferenceSeries.htm or call (800) 348-8653.
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Lanigan said fundamental changes are taking place in the current landscape and for the “foreseeable future.”

“The world is deleveraging,” Lanigan said. “That’s a quick bullet point, but the impacts of that are pretty profound. Yields are going to typically be inactive except more on an unlevered basis than a levered basis, which means costs are going to roll through. It’s going to roll through proceeds, cap rates and spreads. That process is still going on.”

Lanigan said banks would resemble life companies with lower leverage, generating safe and conservative terms without recognition of upside.

Banks participating in the housing market "have taken some huge hits from homebuilders, condo construction” and, in some cases, banks with heavy exposure to home mortgages have taken some tremendous hits, said E.J. Burke, executive vice president and group head at Key Bank Real Estate Capital, Cleveland.

Borrowers wanting loan extensions need a broad and profitable relationship with a commercial bank. Otherwise, "it is very doubtful [they] will get new extension credit, especially if it is commercial real estate," Burke said.

"If [borrowers] already have a loan, and it is coming due, it really means they have to get ready for higher pricing,” Burke added. “Gone are the days that the bank would do a deal between Libor +150 or Libor +175. Get ready to extend the loan at 350 or 400 over [Libor]. Also, get ready for a re-margining request. Typically, bank loans had a provision that has an appraisal trigger built in, and we are all seeing that appraisals are starting to come down."

In June 2007, senior borrowing cost of funds for Key Bank and other A-rated banks stood at Libor +50 but, at present, Key Bank cannot issue new senior debt. Burke said that in the secondary market, senior debt trades at 625 over Libor. The spread between Key Bank's money market account and the prime rate, traditionally 250-300 basis points, is now 1 percent as costs of funds skyrocket above margins.

Regulation, from 2004-2007, focused on money laundering and terrorism, but Burke said regulators shifted to safety and soundness. "Safety and soundness really means [regulators] are very worried about bank portfolios, and they want to insure that [banks] are properly reserved and the regulator needs to understand that the banks are properly capitalized and have the proper liquidity," he said.

As community, regional and national banks pull back from lending for the first time since the early 1990s, private lenders can take advantage of opportunities.

“Borrowers are not going to be thrilled with what is available but, at the end of the day, if it’s the best option, people will find it,” Lanigan said.

"If you are a mortgage banker and you are advising a borrower who has a loan today at a bank, the best advice you can give your borrower is to be realistic and to look around and understand the pressures that lenders are under today," Burke said. "Get over the sticker shock because if a lender says they will renew the loan, that's a positive first step, and get over the 400 over or 350 or 500—whatever the number is."

Lanigan forecasts mezzanine loans at 55 percent to 70 percent loan-to-value by spring 2009, and he said there is still a sense the market would correct at the margin with some stability and less volatility.

“But there is no question there is a fundamental repricing that has gone on and…nobody has quite come to grips with it,” Lanigan said.

"The mortgage bankers of the world can play a tremendous role in educating and helping these borrowers through that," said Adrian Corbiere, executive vice president and partner at Cohen Financial, Chicago. "It's interesting how borrowers and developers are calling mortgage bankers now saying, 'Help, what do I do?’ That never happened before. Certainly, we view that as one way of helping educate that group and trying to get them to make a decision."

"That is a mortgage banking professional's 'nirvana,' being engaged as an advisor, as a consultant" said John Davis, executive vice president at Grandbridge Real Estate Capital LLC, Charlotte, N.C. "The past few years, we have been treated as a commodity, but now [borrowers] are coming back to us and seeking our consult."
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