Commercial Real Estate Lenders Optimistic In 2010

Commercial real estate lenders talked about the coming year and reflect on the past year at the annual Mortgage Bankers Association Convention in Las Vegas.

Most conversations about 2009 were brief, and not very uplifting, but the outlook for 2010 was extremely optimistic. Money from Wall Street to Main Street is piling up and poised for investment.

Despite wanting to invest money in mortgages, most lenders have a cautious view of the current market, so new loans for transactions are being underwritten much more conservatively than we’ve seen in the past. And even as investors struggle with CMBS (commercial Mortgage Backed Securities) that were originated in years past, a new version of CMBS is gearing up in a serious way.

Bank of America, Citigroup, JP Morgan Chase and Goldman Sachs all have announced plans to amass loan portfolios that they intend to pool together and sell as CMBS.

Unlike in 2006 and 2007, these conduit loans will be characterized by conservative valuations and even stricter underwriting guidelines than in years past. Regardless, some predict that this year, $12 billion to $20 billion in new CMBS offerings will hit the market – marking a fantastic beginning for the commercial real estate market to heal.

It is a good time to have money and to be lending on commercial real estate because values have collapsed and there is still very little capital to take advantage of these depressed values.

In essence, those banks with a clean slate can write conservative loans on conservative values, but those hampered by unrecognized problem loans will remain on the sidelines.

While many borrowers and banks continue to struggle with loans written in an entirely different market, new money for conservative deals is very cheap.

Commercial mortgage pricing for five and 10-year loans is in the 5.5 percent to 6.5 percent range for well-leased, conservatively valued properties. And although this is an unfortunate situation for the folks holding the mortgages on all the troubled commercial properties throughout the country, Investors are finding the necessary financing and funding for these bargain opportunities.

To be sure, these new loans will be underwritten in such a way that the borrower and lender agree that the risk of default is considerably less than in years past. And if you’ve followed this author before, you know that we primarily invest in what we consider the safest asset class in all of commercial Real Estate – Self Storage. With it’s stellar track record over the past 50 years of being nearly inflation proof and utterly recession proof – we are having very little problem obtaining new financing for acquisitions and development. This from both the private and public sector who are all clamoring to get a piece of this market that enjoys the lowest loan default rate in all commercial real estate.

2010 is going to be a Fantastic Year!



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