Mortgage Observer

Life Companies Face Renewed Competition

Sam Chandan.

The initial recovery in commercial real estate investment activity has been rewarding for life company lenders. Absent robust competition to originate mortgages to institutional borrowers, life companies have expanded their share of the secured debt market while working to hold the line on underwriting standards. It has not been a volume game. The enhanced liquidity from life company lending has been narrowly focused, with the lion’s share of the benefits accruing to a privileged class of well-heeled borrowers. In this segment of the market, life companies offer their most competitive terms. As debt market conditions improve, they are butting up against other lenders. For life companies, this more crowded landscape is a counterweight to improving economic projections and growth in the number of qualified borrowers.

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Mortgage Observer

Commercial Property Markets in a World of Rising Rates

Sam Chandan.

More than three months after the summer’s initial spike in Treasury yields, commercial real estate investors are breathing a little easier. Third-quarter 2013 data show a modest impact on cap rates and borrowing costs from higher interest rates; neither increased in lock step with their baseline costs of capital. In actively contested segments of the market, including most institutional markets, cap rates were flat or increased only slightly during the quarter. In the extreme, cap rates for the most coveted assets inched lower. 

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Mortgage Observer

Sam Chandan Takes the Pulse of the Banks

Sam Chandan.

Banks’ reengagement with commercial real estate investors showed no signs of slowing in the third quarter of 2013. For well-established borrowers in Manhattan, financing constraints may seem like a historical footnote. The same cannot be said for every corner of the industry, though conditions are improving. A preliminary tally of mortgages originated through mid-September points to more banks lending in more places against a widening spectrum of income-producing properties. Delinquency and default rates are declining, as fresh mortgages dilute the shrinking pool of banks’ legacy debt. Financial dislocations still present obstacles for many credit-worthy borrowers removed from the confines of prime markets. But the data shows that debt, alongside equity, is increasingly predisposed to straying from its safe havens.

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Mortgage Observer

Retail Credit Quality Will Strain as CMBS Issuance Surges

Sam Chandan.

Fueled by investors’ renewed appetite for risk and the relative stability of bond yields, CMBS issuance in 2013 is pacing far ahead of last year. By early May, volume had surpassed $30 billion, roughly three times the 2012 year-to-date tally. An uptick in the number of well-qualified borrowers is only part of the story. As it expands, the credit quality of the larger underlying pool shows signs of an increasingly flexible approach to underwriting. Too many investors are unfazed by the credit drift, largely content that anchoring to existing cash flow obviates risk along other dimensions. Fitted with blinders, those investors run the chance of being outflanked by new drivers of loss, including inadequate cushions against rising interest rates. As the cyclical attention to risk dissipates, a longer list of ratings agencies in the post-crisis era still brings fresh perspectives to the marketplace. It has also invited a new round of ratings shopping. Read More

Mortgage Beat

The (Improving) State of Construction Lending

Sam Chandan.

Construction lending has registered a marked improvement over the last six months, in top-rung metro areas and increasingly in secondary markets as well. During the financial crisis and for most of the period that has followed, development financing has been reserved for the most rarefied opportunities. With the exception of the apartment sector, the search for new projects has generally brought us back to New York and the other cardinal metros. Eager developers chancing upon opportunities elsewhere have found themselves hamstrung by hesitancy among potential anchors, reluctant banks and skeptical regulators. That is changing. Read More

Mortgage Observer

Challenges at the Federal Housing Administration Were Forseen

With few exceptions, news on the housing front has been overwhelmingly positive in recent months. In spite of weak employment trends, historically low mortgage rates and the plodding but inexorable rebalancing of supply and demand have combined to lift sales volumes, prices and perceptions of a housing recovery.

But a rising tide does not relegate housing to a lower rung on the policy ladder. As conditions improve, policymakers will be obliged to address the long-term role of government in promoting specific housing outcomes. Since the government embarked on the conservatorship of Fannie Mae and Freddie Mac more than four years ago, the immediate goal of resuscitating the housing market has taken precedence over the larger question of how policy goals have supported—and undermined—the sustainability of the sector. Read More

Mortgage Observer

Lenders Press Forward, but Outlook for CMBS Remains Reserved

Sam Chandan.

Commercial real estate lenders are growing more confident, or at least more inclined to resume risk-taking. Bucking headwinds from the weaker economy and job market, underwriting standards for loans on well-positioned assets eased in the second quarter and through the summer. Competition to fund high quality borrowers showed increasing spillovers from the febrile apartment sector, with a small but growing number of development projects and cash-out refinancings registering alongside new office, retail and hotel mortgages. Read More