Mortgage Observer

Risk Retention Rules Approved, Will Increase Cost of CMBS Transactions

Send in the clowns...

Six federal agencies voted this week to approve new risk retention rules that could foul up the finally recovered CMBS issuance pipeline, even though the new rules won’t be enacted until 2016. However, the sentiment from some industry observers was relief—earlier proposed regulations were even more strict.

As part of the Dodd-Frank Act’s implementation, rules were passed last month that require managers of collateralized loan obligations, including CMBS, to hold a larger portion of deals on their books—a move that is expected to increase costs but one that won’t scare away investors, according to industry sources. Read More

Mortgage Observer

Hakim Seals the Deal Sans Mezz in LA Buy

6100 Wilshire Boulevard

Los Angeles-based investor Citi Real Estate, headed by Sam Hakim, took a $57.5 million CMBS loan from UBS to buy a Los Angeles office property at 6100 Wilshire Boulevard last month. But prior to the purchase, the borrower, the scion of an established Los Angeles real estate family, had actually arranged for $65 million in funds for the $76 million buy, with a portion of the financing in a mezzanine loan, a source close to the deal told Mortgage Observer.

Alas, when the rates were set to lock this summer, the mezz turned out far pricier than expected, the source said. The borrower opted instead to fill that portion of the capital stack with equity—a move highlighting the potential effect of a tumultuous CMBS market, the source said. Read More

Mortgage Observer

New Brooklyn Medical Center Refis With $49M CMBS Loan

Meridian Capital Group arranged a $49 million CMBS loan for the refinance of the newly built Calko Medical Center in Brooklyn, Mortgage Observer has first learned.

Calko was built last year and holds 125,000 square feet of office and retail space. The medical center holds an ambulatory surgery center, medical offices and a pharmacy and is located at 6002 Bay Parkway in Brooklyn’s Bensonhurst neighborhood. It cost about $60 million to develop, according to published reports. Read More

Mortgage Observer

Hotel Financing Frenzy

Hotels_InDepth_MO

When you’ve been in this business long enough to see a few investment cycles, the ubiquity of the herd mentality never ceases to amaze. When the market is crashing, many perfectly good assets cannot be financed. And when the market is hot, lenders will trip over each other with bids. The lender that wins usually borders on the irrational. Such is the case in the hotel finance market today.

The recent anniversary of the 9/11 terrorist attacks reminded me how hotels suffered after the disaster, as people feared flying and stopped booking hotel reservations. Cash flows dropped, cap rates increased, and it took the market a couple of years to recover. More recently, the financial crisis of 2008/2009 had a similar impact on hotels, as folks drastically cut back on consumer spending and cash flows on many hotels were halved, with countless assets either in foreclosure or workout. Read More

Mortgage Observer

Carve-outs: Bad-boy Guarantees Have Borrowers Getting Spanked

Jonathan Mechanic

So-called bad-boy guarantees have recently created headaches for borrowers when CMBS loans go bad, industry experts told Mortgage Observer. A number of recent cases across the nation have interpreted the guarantees, which prohibit certain borrower activity, like “indebtedness,” and “insolvency,” to mean that the principals of a borrowing entity are personally liable for losses in the event of default—a shocking development for CMBS borrowers and lenders alike.

It began with a 2011 case, Wells Fargo vs. Cherryland Mall, which rose to the highest court in Michigan. A provision that the borrower would “not become insolvent” was found to constitute a personal guarantee by the principal of the development company, which had defaulted on a CMBS loan, said Sam Lee of Duval & Stachenfeld. “It created a ripple effect,” in the industry, he said, because that “innocuous phrase,” one type of bad-boy clause, was boilerplate in many CMBS loan documents at the time. (The ruling by the Michigan court was actually later overturned by the state legislature, in an unprecedented move). Read More

Mortgage Observer

CMBS: Is Underwriting for CMBS Back to Pre-Crisis Levels?

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With the country’s CMBS market bouncing back to pre-crisis levels, industry observers are voicing growing concerns about a deterioration in underwriting on securitized commercial debt deals.

The CMBS underwriting environment has substantially declined over the past three years and is now akin to where it was in late 2005 and early 2006, according to several rating agencies, including Fitch Ratings and Moody’s Investors Service. Underwriting on such deals continues to weaken, in large part, due to rising competition between lenders to issue securitized debt, a Fitch report published this summer said. Read More

Mortgage Observer

High Spreads in $1B Atlantis CMBS Issuance

Atlantis.

The $1 billion Atlantis CMBS offering, collateralized by a single, 245-acre, 2,917-room resort property located in Paradise Island, Bahamas, exhibits higher than normal spreads for its fixed-rate AAA-class certificates, due in part to corresponding risk, Mortgage Observer Weekly has learned.

BREF ONE LLC’s Series A, a fund affiliated with a subsidiary of Brookfield Asset Management, sponsored the $1 billion mortgage for the resort, according to a Standard & Poor’s pre-sales report, released Aug. 4. The loan, divided into a $650 million fixed-rate and $350 million floating-rate component, was provided by Deutsche BankMorgan Stanley and Citigroup. Read More

Mortgage Observer

Banks Most Active Lenders in Q1, Bolstered by Bridge Loans

Banks are on top. Approximately 42 percent of total commercial lending nationally in the first quarter of 2014 was originated by banks, according to CBRE’s Capital Markets U.S. Lender Forum June 2014 report. Their market share was up from around 26 percent for the whole of 2013, the report showed. Life companies dominated in the first quarter of last year.

Banks have benefited from increased bridge lending, a sector that was up 85 percent from the same period last year and totaled 11 percent of total loans closed in the first quarter of this year, according to the report. Read More

Mortgage Observer

Citigroup Securitizing $1.45B Loan to SL Green

388 Greenwich Street

Citigroup has received preliminary ratings for the issuance of CMBS secured by a first mortgage loan of $1.45 billion, according to a pre-sales report from Morningstar Credit Rating.

The floating-rate mortgage loan was recently provided by a group led by Citi to the company’s current landlord at 388-390 Greenwich Street in Tribeca, SL Green Realty, for the purpose of buying out Canadian pension fund Ivanhoe Cambridge’s joint ownership in the buildings, as Mortgage Observer previously reported.  The seven-year mortgage was provided by a lending group that included Bank of China, Wells Fargo, and Barclays, according to a statement from SL Green when the loan closed, last month.  Read More

Mortgage Observer

The Changing Face of Retail

Sam Chandan

The way we shop is changing. The reasons are varied: our unfolding economic circumstances, the ever-increasing ease of online commerce and a shifting sense of what the retail experience should offer. For investors and lenders alike, limited foresight into the sector’s evolution implies unique risks. It also weighs heavily on the outlook for billions of dollars in legacy CMBS loans, maturing over the next several years. Those loans are overweighted to the small retail assets that have traditionally been the bread and butter of securitization. Read More

Mortgage Observer

Retail Lending Gets Easier—Thanks in No Small Part to CMBS

Retail lending is on the rise

It’s loan shopping season for shopping center owners. Retail landlords around the country are increasingly turning to commercial mortgage-backed securities to finance properties in secondary markets as an alternative to traditional loans, industry sources told Mortgage Observer.


While banks and insurance companies that provide traditional commercial real estate financing are targeting primary markets like New York and San Francisco, focusing on prime properties and the strong multifamily sector, investors who are hungry for returns are willing to dig into CMBS deals on less desirable properties with less prestigious retail tenants and higher leverage, sources said. Read More