FEATURE ARTICLE, MAY 2012

THE PERFECT STORM
Several commercial lending opportunities to choose from in 2012.
Dan Friedeberg

The 2012 lending environment is turning out to be much more fluid than in recent years. Fragility in the overall economic marketplace, combined with high liquidity levels within the various segments of commercial lending is creating a perfect storm for commercial real estate professionals. There has been a dramatic increase in both the number of lenders in the commercial space, as well as the pace at which organizations are moving to provide current and aggressive financing for investors.

Most insurance companies active in the lending space have increased their allocations for 2012 from the past several years. There are two primary factors which have fueled this phenomenon. First, in today’s climate insurance companies can achieve a significantly higher yield by investing in commercial mortgage loans than in high-grade bonds. This bucks the traditional trend — insurance companies typically prefer the liquidity investments provide by high-grade bonds over commercial mortgages.

Secondly, commercial mortgage portfolios have performed quite well from a security standpoint for insurance companies. The average delinquency rate among life companies currently hovers just over 0.5 percent, which is much lower than other commercial lending segments. That kind of positive performance over the long term makes life insurance companies increasingly comfortable with commercial mortgage investments.

CMBS lenders experienced significant volatility throughout the second half of 2011 and first quarter of 2012. According to Commercial Mortgage Alert, the CMBS market was forecasted at the end of last year to generate $38 billion in mortgages in 2012. CMA has since changed that projection in an April 5, 2012, article to, “Volume is now on pace to reach just $24 billion this year. … But lending by securitization programs picked up in the first quarter as CMBS spreads tightened.” It feels like the segment is running on all cylinders, with new active CMBS lenders emerging every week.

At the same time that insurance companies and CMBS lending are expanding, commercial banks also appear to be gaining momentum. Commercial banks are cleaning up their balance sheets and subsequently emerging as a significant player in the commercial mortgage space this year.

And while borrowers have a multitude of choices for capital, the market is likewise more complicated and fast-paced than in recent years. These factors have elicited an added focus on working with qualified experts with the knowledge to successfully access capital and navigate the ever-changing marketplace. Moreover, many premium lenders appoint seasoned mortgage banking companies to originate and service loans as time sale representation in specific markets, which enables companies with these exclusive arrangements to offer loan products unavailable to the rest of the market.

— Dan Friedeberg is the president of Barry Slatt Mortgage, a premier commercial mortgage banker with more than 40 years of excellence in loan origination, and more than $2.3 billion in servicing.

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