FINfacts Newsletter XVIII-5

Reports from this year's MBA-CREF Convention in Las Vegas, February 1-4.     As opposed to the 2008 and 2009 conventions that were "Like a funeral", this year saw lots of lenders with money to deploy throughout the capital stack.    CMBS lenders are taking applications.     Bridge and Mezz funds abound.    Bottom line is capital providers are excited about opportunities in the "new basis" brought on by 3 years of market dislocation. 

Quotes from market participants:   "Capital has arrived before the deals"......."We are poised and ready to execute a pipeline of CMBS 2.0" ......"We want to finance A properties in B locations or B properties in A locations"........"Deals that are transacting are doing so because of a story at the property level.    Lender issues and leasing issues being the two main ones" ........"Lenders are starting to re-focus on CMBS to off-set the loss of revenue in the SFR securitized market, which no one sees coming back anytime soon"....."We are doing 80% of cost bridge loans, non-recourse, 8-10%"

One common theme is "not enough deals" as transaction volume is still a fraction of normal as the industry lacks a grand "forcing mechanism" (such as the RTC in the early 90's) to push banks, servicers, legacy funds, and others to dispose of properties.     There is still lots of "pretend and extend" going on, but it can't go on forever.    There is a growing consensus that the second half of 2010 will see accelerating deal flow.    Lenders at this stage in the cycle are looking for the usual aka "good properties with good sponsors in major MSA's, etc"    We will see if frustrated originators start to loosen up underwriting in order to fill their pipelines.    Look for several "Hot Money" writeups in the next 2 or 3 editions of FinFacts including below.   (David R. Pascale, Jr, Jonathan Lee, Josh Roseman)     

Bridge Lending Program     We met with a fund at MBA with a $200,000,000 bridge fund and over $1 billion available including note purchases, mezz, etc.   

Loan Amounts: $10,000,000-$50,000,000; Rate: Floating starting at 7.5-9.5%; Term: 2-3 years; Amort: Interest Only; Lender Fees: 1.0% plus back end "kicker" ; Prepay: deal specific; Lender will fund mezzanine at 12-17% and can also do the entire stack.   

Health Care Bridge Lending Another sign of the capital markets returning as financing for "non core 4 product type" properties is available. This lender is another newly formed fund staffed by industry veterans. The business plan is to provide "bridge to HUD" or other perm programs. They will fund at break even or below on transitional properties, focussing on sponsor expertise. Lender will look at medical office, hospitals, skilled nursing facilities, congregate care, alzheimers, etc. Lender will even look at properties backed by gym memberships! Loan amounts are deal specific, lender likes "good basis" on distressed acquisitions, etc. Typical pricing is LIBOR (5% floor on LIBOR) plus 5 to 8%, so its basically a fixed rate transaction at 10-13%.

Transaction Size: $7,000,000 and up;  Rate: LIBOR + 5.0 to 8.0%, 5% floor on LIBOR Loan Term: 3 years (extension available) Amort: Int Only; Non Recourse available; Prepayment: 18 month lock out; Fees: 1.0% lender fee, 1.0% exit fee; Geography: Nationwide

Karrie and Steve welcomed Colin Stanley Orchard, the newest addition to their family on Wednesday, February 3.     Best wishes to the Orchards from all of us.