Mortgage Observer

Life Companies Now: Higher Volumes, Lower Standards

Sam Chandan.

The commercial real estate debt landscape has become considerably more crowded of late. The resulting contest to fund deals, along with historically low cost of capital, has contributed to higher real estate prices and taken an inevitable toll on underwriting standards.

The latter trend is most easily observable in the information-rich CMBS market, but is also present in the competitive overlaps between lenders. A range of indicators, from historically low debt yields to falling amortization, shows us the direction of understanding standards even if it does not tell us our exact position in the risk cycle. Read More

Mortgage Observer

Life Companies: What Riskier Lending Could Mean in the Next Cycle

IRAQ-ECONOMY-MONEY-EXCHANGE

“I’ve seen more people fail because of liquor and leverage … You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.” —Warren Buffett

Numerous articles are devoted to the CMBS industry and its effect on the larger real estate landscape. With total CMBS lending at $99 billion in 2014, this capital flow has helped buoy the market and keep cap rates low ever since the dark days of 2009. However, it is the life insurance companies that are the rock that large loan deals are built on. Behemoths like Prudential and MetLife individually lend over $4 billion annually, through good times and bad, going back to the 1980s, before CMBS was even a thought.  Read More

Mortgage Observer

Q&A: Herbert Kolben, Senior Vice President at Ullico

Herbert Kolben

Herbert Kolben, a 30-year industry veteran, helms real estate investment and lending for Ullico, a Washington, D.C.-based pension and life insurance company. He recently told Mortgage Observer about the provisions borrowers are demanding today, lending on projects that create union jobs and what kind of due diligence is involved in building an animal terminal at JFK airport. Read More

Mortgage Observer

Northern Exposure: A Look at Canadian CMBS

Canada

There are a lot of differences between Americans and our gentle neighbors to the north. We’ve chosen different parliamentary systems. We feel differently about gravy on fries. And one of us (hint: not the U.S.) was recognized for having the most stable banking system in the world following the 2008 financial crisis. This was likely for a reason—a totally different ethos surrounds lending for real estate in Canada.

Few things make it more clear how differently the lending communities in the two countries behave than a panel on the Canadian CMBS business at the recent Commercial Real Estate Finance Council conference in Miami Beach did. Read More

Mortgage Observer

Hotel Giraffe Refinanced With CCRE

Hotel Giraffe

Boutique lodge The Hotel Giraffe refinanced with a $39 million CMBS loan from CCRE negotiated by HKS Capital, Mortgage Observer has learned.

The 39-key hotel is owned by self-described “indie hotelier” Henry Kallan, who has been a client of HKS’ Jerry Swartz’s for more than a decade. Read More

Mortgage Observer

Hotel REIT Takes $150M Unsecured Term Loan Facility

Publicly traded REIT RLJ Lodging refinanced outstanding CMBS debt to the tune of $150 million, the firm announced yesterday. The new unsecured term loan facility allows RLJ to resolve any questions about refinancing next year, when interest rates will likely be higher and a slew of loans will be due, potentially stretching lenders’ limits—the anticipated so-called “wall of maturities.” Read More

Mortgage Observer

Q&A: Tim Koltermann, CEO of Walker & Dunlop Commercial Property Funding

Tim Koltermann.

Mortgage Observer recently spoke to Mr. Koltermann, who helped establish Walker & Dunlop’s new CMBS and high-yield lending arm, with Fortress Investment Group, as part of an effort to grow Walker & Dunlop’s lending presence around the country. The companies formed their joint venture in 2013 and launched the specialty finance platform in April 2014, with Mr. Koltermann, a nearly 20-year Wall Street veteran, at the helm.
Read More

Mortgage Observer

CMBS 3.5?

Smaller lenders take a larger piece of the pie.

When Robert Verrone was head of Wachovia Bank’s large loan group, he closed and securitized huge deals—on 650 Madison Avenue, Donald Trump’s office tower at 40 Wall Street and Blackstone’s Boca Raton Resort & Club in Florida, to name a few.

After the government-forced sale of Wachovia to Wells Fargo to avoid the bank’s bankruptcy in 2008, Mr. Verrone started his own advisory company, Iron Hound Management Company LLC. This past January, the firm announced a new partnership with Bank of New York Mellon Corporation to form a conduit operation called IH Capital; BNY Mellon allocated $500 million of its balance sheet to the new venture. Read More

Mortgage Observer

Two Men and a Heyday

Michael Lehrman.

As a kid, Michael Lehrman used to play a game with his grandfather, the late Bronx landlord and developer David Buntzman. They would walk into a restaurant when they knew it would not be that busy—say, between lunch and dinner—and count the chairs and the tables.

“I realized later in life,” Mr. Lehrman said during a recent interview with Mortgage Observer, “that he would slip the guy some money. We’d go into the kitchen, and then we’d talk to the people working there; and find out what works and what doesn’t—how do you make a small business work, how do you make a business that focuses on making its customers happy every day or they won’t come back.” Read More

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