The Current Commercial Mortgage Market (there still is one, sort of) - by Brenner Green, Real Property Capital, Inc.

The commercial real estate finance market is experiencing a big similarity to 2008 in the sense that this whole situation, although caused by completely different events, basically boils down to a great big liquidity test, right down the chain from the banks to the borrowers to the tenants and the guys like us who make a living bringing borrowers and lenders, or buyers and sellers if you are on the sales side, together. Outcomes are going to be varied and wildly unpredictable based on asset class, lender type and a whole bunch of other factors that we haven’t even thought of yet. It seems inevitable now that some people are going to go out of business. That’s where the similarities to 2008 end. The industry has enjoyed an unprecedented run in modern times, leverage has largely been suppressed from reaching 2006 levels and borrower balance sheet requirements to qualify for a loan are more stringent as well. We exist in a more resilient system of capital than pre-Great Recession. Don’t expect a bunch of assets to be dumped on the market overnight.

Sorry for the digression, now the financing market.

CMBS – Dead, maybe the big banks will begin quoting in a week or two with the hope of closing in June, and market participation will DEFINITELY decrease (meaning people are going to go out of business).

Fannie/Freddie – if you can post 18 months of debt service and handle getting zero credit for your retail income (yes that is seriously what they are advertising) you might get a loan at 60-65% LTV…can we call that dead? I think so.

Bridge/Non-recourse Construction – Hard to say yet but expect market participation to decrease by 60-75% as the majority of these lenders funneled the loans into CLOs, which is basically a rebranded CDO (think 2006) without all of the subprime resi bonds sprinkled in. That market is dead.

Which gets us to…

Banks – This is the bright spot. There are a number of banks across the region willing to lend. All loan types are generally available if you know where to look. Market participation is down 65% at least but if you have a good deal and are a “good” borrower you can get a loan. Rates have gone up, and will likely go up again before they go down. And you may have to sign recourse to get the rate you want, at least in the short term. The bank balance sheet loan market is far more efficient than it used to be, and banks are quickly noting the reduced availability of capital and pricing accordingly. Maybe it goes without saying, but expect the bank to require that your tenants are paying rent at closing.

R. Brenner Green is a 20-year veteran in commercial real estate finance and President of Real Property Capital, Inc., a full-service commercial mortgage banking firm based in the Philadelphia suburbs.