Money Talks
May 1, 2009 12:00 PM, By Elaine Misonzhnik
Regional and local banks, private equity players and foreign financial institutions still have money to lend for retail real estate.
Still out there
The good news for retail property owners is that while the national banks remain on the sidelines, other capital sources are still in the marketplace. Such sources include local and regional banks, life insurance companies and foreign banks, says Andrew S. Oliver, executive vice president and principal with Cushman & Wakefield Sonnenblick Goldman (C&WSG), a New York City-based real estate financial services firm.
Private equity money has also been entering the game — for example, in February, international real estate investment banking firm the Carlton Group launched a $300 million joint venture fund with an institutional real estate investor to originate first mortgage loans for commercial properties. The fund has not set specific lending targets for any property type but plans to avoid lending on land parcels.
Transactions are getting done — in April, a major life insurer provided a $205 refinancing for Macerich Co.-owned North Bridge Center, a 680,933-square-foot mixed-use complex in Chicago. The same month, C&WSG closed a $90 million loan on an urban lifestyle center in a major East Coast city. The property, which is owned by a publicly-traded REIT and features a prime location, a high occupancy rate and strong current cash flow, attracted bids from five different lenders, including a regional bank and several insurance companies, says Oliver. REITs get favorable consideration from lenders. Smaller, privately-held owners with centers in secondary and tertiary markets are still having great difficulty securing loans.
The size of the loan also presents a problem. Some of the local and regional banks might be in better health than their larger counterparts but because of their smaller portfolios, they tend to stick to loans under $20 million. At the height of the market, in spring 2007, retail owners could secure loans upward of $200 million on individual properties and up to $500 million on portfolio deals. Meanwhile, the foreign banks and the life insurance companies might have the money for larger loans but have very limited appetite for risk.
For example, Prudential Mortgage Capital Co., the commercial mortgage lending division of Prudential Financial, Inc., allocated $7 billion for new loans in 2009. At least 20 percent of that will be for multifamily properties, the rest will cover all sectors of commercial real estate. But speaking at New York University's REIT symposium last month, David A. Twardock, president of Prudential Mortgage Capital, warned the firm was only interested in financing top-tier retail assets. “If it's a mall, it's got to be the best mall in the country, with over $400 per square foot, and closer to $500 per square foot in sales,” he said.
In 2007, life insurance companies originated approximately $43 billion in commercial mortgages, according to the Mortgage Bankers Association, an industry trade group. This year, Twardock estimates the amount will likely be closer to $20 billion.
Outstanding Debt
| 2008 | 2007 | |||
|---|---|---|---|---|
| $millions | % of total | $millions | % of total | |
| Commercial Banking | $1,548,780 | 44.3% | $1,396,897 | 41.9% |
| CMBS, CDO and other ABS issues | 746,370 | 21.3 | 788,219 | 23.7 |
| Life insurance companies | 315,516 | 9.0 | 304,030 | 9.1 |
| Savings institutions | 192,965 | 5.5 | 215,416 | 6.5 |
| Government-sponsored enterprises | 189,400 | 5.4 | 147,674 | 4.4 |
| Agency- and GSE-backed mortgage pools | 149,245 | 4.3 | 139,226 | 4.2 |
| State and local government | 82,834 | 2.4 | 84,900 | 2.5 |
| Finance companies | 72,457 | 2.1 | 59,116 | 1.8 |
| Federal government | 69,034 | 2.0 | 65,269 | 2.0 |
| REITs | 39,022 | 1.1 | 41,954 | 1.3 |
| Nonfinancial corporate business | 30,754 | 0.9 | 29,704 | 0.9 |
| Nonfarm noncorporate business | 26,224 | 0.7 | 24,860 | 0.7 |
| Household sector | 14,400 | 0.4 | 13,567 | 0.4 |
| Private pension funds | 9,610 | 0.3 | 8,947 | 0.3 |
| State and local government retirement funds | 7,727 | 0.2 | 7,944 | 0.2 |
| Other insurance companies | 4,250 | 0.1 | 4,770 | 0.1 |
| Total | $3,498,588 | $3,332,493 | ||
| Sources: Mortgage Bankers Association, Federal Reserve Board of Governors | ||||
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