Right now many of us are focused on a new White House administration which will potentially deliver changes that could greatly impact the commercial real estate industry. While we can’t predict what is coming, we must evaluate some recent legislation that is greatly impacting the industry this very second. New lending guidelines are now in place which are significantly affecting the ability to replace maturing CMBS loans with new longer term loans. To address this changing lending environment, at David B. Norton Inc., we have modernized our role as real estate mortgage brokers/investment bankers to fit today’s challenging business climate. We conduct a thorough underwriting of the transaction prior to engagement. We take the time to identify a property’s strengths, weaknesses, and importantly, the project’s viability within the new lending environment. Foremost, this includes developing the most favorable and efficient capitalization strategy for the asset and the sponsor.
2017 will see approximately $100 Billion in maturing CMBS loans in a new underwriting environment where borrowing is both more expensive and more complicated. New regulations in the CMBS market require risk retention that requires lenders to keep a portion of new loans on their books. These risk retention rules not only raise the cost of the loans, but also make the lenders far more conservative in their underwriting. Many of the CMBS loans that are currently maturing were originated 10 years ago when properties were at the peak of their valuation and underwritten very aggressively at high leverage thresholds. Although property valuations have returned from the lows of the previous few years, these properties still may not have a valuation required to qualify for a traditional loan. Many of the loans were written when lenders were routinely originating debt packages of 75%+ of the property value, but today’s lenders are reluctant to go above 60% to 65%.
2017 will see approximately $100 Billion in maturing CMBS loans in a new underwriting environment where borrowing is both more expensive and more complicated. New regulations in the CMBS market require risk retention that requires lenders to keep a portion of new loans on their books. These risk retention rules not only raise the cost of the loans, but also make the lenders far more conservative in their underwriting. Many of the CMBS loans that are currently maturing were originated 10 years ago when properties were at the peak of their valuation and underwritten very aggressively at high leverage thresholds. Although property valuations have returned from the lows of the previous few years, these properties still may not have a valuation required to qualify for a traditional loan. Many of the loans were written when lenders were routinely originating debt packages of 75%+ of the property value, but today’s lenders are reluctant to go above 60% to 65%.
Some estimate that as much as 40% of the CMBS maturities in 2017 will not be eligible to be financed without some sort of recapitalization – short term bridge loans, mezzanine loans, or owner new equity contributions. At David B. Norton Inc. we are seeing this refinance challenge unfold with our clients. As a result, we are in the structured finance market every day, evaluating and learning what new resources are out there. Bottom line, a lending environment has been created where owners must re-think how they will be financing their properties because it simply won’t be as easy it used to.
If you are looking for financing I urge you to contact us so that we can give you our perspective and provide you with immediate resources and results. Please see our list of satisfied clients: (www.davidbnorton.com/client-quotes.html). We look forward to hearing from you!
David Norton - (310) 689-7375 - [email protected]
Lew Gildred - (310) 689-7377 - [email protected]