Lenders' Views

.

Once a rising tide lifted all boats, but now lenders are looking for what they perceive are sure bets. So what are lender's current preferences? Apartments stay on top, with office bringing up the rear.

Apartments

Life Insurance lenders are beating the GSA's on good quality infill apartments. This could be because of where spreads are right now, but it could also be a political move on the part of the agencies. If the Tea Party wants to privatize FNMA-Fannie and FHLMC-Freddie, the best way to show a need for taxpayer support is for the agencies to be active where the private sector refuses to go, rural communities and C-Quality urban product. On the borrower side we are seeing active apartment owners rebuilding relationships with the life companies just in case the agencies are curtailed.

Retail

Lease provisions besides rent are more important than ever, effecting mortgage rates and property values. If owners are signing new or reworking old leases, they need to fight to get rid of co-tenancy clauses and to get annual reporting of retail sales. A mortgage rate might be 100 BP more for a big-box retailer without sales data versus a similar store where the owner can show the tenant has good sales performance.

Industrial
Lenders' adversity to single tenant deals is creating a big advantage for those owners who can do portfolio financings. Newmark Realty Capital has been able to get major discounts in interest rates for large industrial portfolios, say a single loan against 10 properties. With cheaper financing these larger players can bid higher for property to buy and bid lower rent to attract tenants to fill their buildings.
Office
Why, with 40+ million square feet of vacant office and R&D space in Silicon Valley, do we see major users designing campuses and leasing new buildings at twice the rent they would pay for a 1980's vintage R&D building? Partly tenants want safer more resilient buildings. To meet this resiliency demand from users the structural engineering profession is working on standards that will estimate a building's downtime after a major quake. ATC58 is in draft and should be issued in 2011. Just as important, tenants want spaces that can layout for the "office of the future", see my April posting.
Other Product Types
Newmark remains active in the outlying product types; self-storage, mobile home parks, data centers, hotels. If it generates income we can find a financing source, working with a wide range of lenders with a broad spectrunm of interests. We have a long list of life insurance correspondent lenders, are active in CMBS 2.0 and are also working with those banks that are back in the market.