Wednesday, February 12, 2014

Commercial Mortgage Options Expanding – Borrowers to Benefit?

By Kathy Zelenock

Anyone working in the commercial real estate mortgage industry in the past five or six years is eager for signs of a sustained recovery. Having just returned from the Mortgage Bankers Association Commercial Real Estate Finance Conference (MBA-CREF), one of the largest annual gatherings of commercial mortgage lenders, we can report that lender optimism is greater than it has been in years.

Reports at the conference identified nearly 40 lenders actively seeking to originate CMBS loans, up from approximately 27 at the same time last year. The number of lenders targeting commercial mortgage-backed securities (CMBS) lender is nearing previous peak years of 2007-2008. While life insurance companies have reported near-record years and our GSE (government-supported enterprise) lending practice (Fannie Mae, Freddie Mac, HUD loans) has been busy in the past few years, we are seeing increasing activity in lending by local, regional and national banks, and in CMBS lending.

The market expansion comes at an opportune time, not just because we all need relief from the difficult economy, but because a significant number of loans will mature in 2015-2017. Almost 35,000 loans, or around $400 billion, of CMBS loans will mature in that period. These loans date back to the peak CMBS years of 2005-2007, when rising property values and favorable interest rates led to a veritable “feeding frenzy” of lending.

Competition among lenders should be a benefit for borrowers, particularly those with stronger properties, in the short term. Interest rates currently remain at near-record lows, and at least for 2014, borrowers should have several types of lenders to choose from. Increased competition among lenders should mean some loosening of credit standards – or at least, more creativity and collaboration between borrowers and lenders to find a way to make deals work than was available during the past several years.

The picture for 2015-2017 is slightly murkier, as almost certainly, interest rates will move upward at some point, and the tidal wave of refinance demand may, at some point, swamp the market, leaving some properties unable to obtain financing. Nevertheless, increased commercial mortgage lending activity by a variety of lenders should make the market more palatable for borrowers.

Dickinson Wright attorneys represent lenders, borrowers and loan servicers in all aspects of commercial mortgage finance, in transactions across the country. Our clients include state and national banks, life insurance companies, and other institutional lenders (including governmental subdivisions and agencies), and, Real Estate Investment Trusts (REITs), investors and developers and loan servicers with respect to conventional commercial mortgage loans, construction loans, sale-leaseback transactions, ground lease transactions, capital markets or commercial mortgage-backed securities (CMBS) loans, Fannie Mae and Freddie Mac multifamily and manufactured housing loans, and bond and asset recovery, workouts, restructurings, and foreclosures, including significant bankruptcies.

Kathy Zelenock is a member of the Real Estate Group, and leads a team that closes commercial and multifamily loans on behalf of leading national lenders, as well as smaller regional and local banks, including multifamily and manufactured housing community loans originated for CMBS, Fannie Mae and Freddie Mac, and loans guaranteed by the USDA. She has acted as closing or supervising counsel for several billion dollars in commercial mortgage loans, including a variety of property types (multifamily, office, manufactured housing communities, hotels, self-storage, nursing homes, shopping centers, etc.). As part of that practice, Kathy developed and uses innovative transaction management and document automation software that improves the efficiency of loan closings. Kathy is recognized by Chambers USA, Best Lawyers in America, and Michigan Super Lawyers as a leading lawyer in Real Estate in Michigan, and is a Fellow of the American College of Mortgage Attorneys.