24 posts tagged “loan”
Federal Reserve Chairman Ben Bernanke addressed the Economic Club of New York earlier of this week and spoke about the current financial climate and its trajectory. In his speech, Bernanke expected to see a slow economic recovery as demand for commercial property is down but said that he did not agree with economists bracing for another slip into recession next year. An excerpt:
Demand for commercial property has dropped as the economy has weakened, leading to significant declines in property values, increased vacancy rates, and falling rents. These poor fundamentals have caused a sharp deterioration in the credit quality of CRE loans on banks' books and of the loans that back commercial mortgage-backed securities (CMBS). Pressures may be particularly acute at smaller regional and community banks that entered the crisis with high concentrations of CRE loans. In response, banks have been reducing their exposure to these loans quite rapidly in recent months. Meanwhile, the market for securitizations backed by these loans remains all but closed. With nearly $500 billion of CRE loans scheduled to mature annually over the next few years, the performance of this sector depends critically on the ability of borrowers to refinance many of those loans. Especially if CMBS financing remains unavailable, banks will face the tough decision of whether to roll over maturing debt or to foreclose.
Recognizing the importance of this sector for the economic recovery, the Federal Reserve has extended the TALF programs for existing CMBS through March 2010 and newly structured CMBS through June. Moreover, the banking agencies recently encouraged banks to work with their creditworthy borrowers to restructure troubled CRE loans in a prudent manner, and reminded examiners that--absent other adverse factors--a loan should not be classified as impaired based solely on a decline in collateral value.
For more news and information visit Blumberg Capital Partners.
The Federal Reserve has released its October 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices looking at the changes in business and household loan supply and demand with a focus on three sets of special questions: The first asked banks about the reasons for the decline in commercial and industrial (C&I) loans over the first eight months of 2009, the second asked banks about the status of commercial real estate (CRE) loans on their books that were scheduled to mature by September of this year, and the third asked banks about potential changes in credit card lending due to implementation of the Credit Card Accountability Responsibility and Disclosure (Credit CARD) Act.
The results of the survey are based on responses from 57 domestic banks and 23 U.S. branches and agencies of foreign banks; participating banks received the survey on or after October 6, 2009, and their responses were due by October 20, 2009. Domestic banks indicated that they continued to tighten standards and terms over the past three months on all major types of loans to businesses and households. And excerpt:
A small net fraction of branches and agencies of foreign banks eased standards on C&I loans, whereas a significant net fraction continued to tighten standards on CRE loans. Demand for most major categories of loans at domestic banks reportedly continued to weaken, on balance, over the past three months. This weakening was somewhat less widespread than in the July survey for C&I loans, CRE loans, and nontraditional mortgages; approximately the same for consumer loans; and significantly more widespread for home equity lines of credit. However, banks reported stronger demand, on net, for prime residential real estate loans. Demand for C&I and CRE loans at foreign banks continued to weaken, on balance, but the weakening was somewhat less widespread than that in the July survey.
For more news and information visit Blumberg Capital Partners.
The Federal Deposit Insurance Corp., the Federal Reserve, the Office of Thrift Supervision and the Office of the Comptroller of the Currency released a new policy statement to assist examiners in evaluating institutions' efforts to renew or restructure loans to creditworthy CRE borrowers. The statement supports prudent commercial real estate loan workouts, stressing that performing loans, including those renewed or restructured on reasonable modified terms, will not be subject to adverse classification solely because the value of the underlying collateral declined.
An excerpt from the 33 page statement:
The regulators have found that prudent CRE loan workouts are often in the best interest of the financial institution and the borrower. Examiners are expected to take a balanced approach in assessing the adequacy of an institution's risk management practices for loan workout activity. Financial institutions that implement prudent CRE loan workout arrangements after performing a comprehensive review of a borrower's financial condition will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse credit classification. In addition, renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance.
For more news and information, visit Blumberg Capital Partners.
Edward J. DeMarco, acting Director of the Federal Housing Finance Agency (FHFA), addressed the U.S. Senate Committee on Banking, Housing and Urban Affairs last week to address the future of the mortgage market. The FHFA is serving as conservator of Fannie Mae and Freddie Mac which tally combined losses of $165 billion from July 2007 through the first half of 2009, with $47 billion accounting for the first half of 2009. DeMarco said that their financial performance continues to be dominated by credit-related expenses and losses stemming principally from purchases and guarantees of mortgages originated in 2006 and 2007.
"These two companies have $5.3 trillion in mortgage exposure. Given the Enterprises' importance in the mortgage market, Enterprise activities to stabilize the housing and mortgage markets are closely linked to conserving assets," said DeMarco. "Over the long term, effective mortgage modifications, refinancings, short sales, and other loss mitigation activities assist homeowners and neighborhoods and will save the Enterprises billions of dollars."
Commercial Property Executive published an article about the Fannie and Freddie mortgage defaults. An excerpt:
What DeMarco said to the Senate Banking Committee was a little more formal than a Yogism: "We remain concerned and recognize the risk associated with increasing numbers of seriously delinquent loans."
He then backed up that concern with some statistics: the rate of seriously delinquent mortgages at Fannie and Freddie total 4.2 percent and 3.1 percent, respectively. What the government plans to do about Fannie and Freddie, now that they have been de facto government agencies for about a year, is still an open question, though reportedly it will be addressed in the Obama administration's proposed 2011 federal budget, which will be released in February.
For more news and information visit Blumberg Capital Partners.
The Internal Revenue Service introduced a new Revenue Procedure (2009-45) earlier this month that would make it easier for real estate mortgage investment conduits (REMIC) to modify securitized loans that are not yet in default but are likely to do so prior to maturity. The modification allows REMIC's to alter their commercial loans without jeapoardizing their tax status or exposing them to prohibited transaction taxes. In the procedure, the IRS has identified the current problem as follows:
In particular, borrowers under many of the commercial mortgage loans that will mature in the next few years are concerned that they will encounter great difficulty in obtaining refinancing for these loans. Because they had always anticipated using the proceeds from refinancing to satisfy the principal balance at maturity, the borrowers are often at risk of defaulting when their loans mature. This may be true even for loans in which the underlying commercial real estate is providing more than enough cash flow to satisfy debt service before maturity.
The Real Estate Roundtable expressed its hope that the new rules will help ease some of the liquidity problems in commercial real estate according to a CPE article. "Amidst a massive wave of maturing commercial real estate debt—and still virtually no credit available for refinancing—borrowers need to be able to talk with their loan servicers about restructurings in a timely manner, before the point of default," Jeffrey DeBoer, Roundtable president & CEO, said in a statement. "By easing the tax penalties on changes to securitized ‘conduit debt’—i.e., loans held within a REMIC—the IRS has taken a very positive step."
For more news and information visit Blumberg Capital Partners.
SL Green Realty Corp. (SL Green) has secured a $145 leasehold mortgage for the refinancing of 420 Lexington Avenue in NYC provided by TIAA-CREF. Cushman & Wakefield Sonnenblick Goldman served as the advisors to SL Green; Morton Holliday, managing director at Cushman, noted that the financing arrived "during one of the most turbulent times in the credit market history and in a severe economic downturn".
The property, known as the Graybar Building, was named after one of its original tenants Graybar Electric, and is a 31-story, 1.5-million square foot office and retail building towering above Grand Central Terminal. The building is currently 97% leased with major tenants including Bank Leumi USA, Metro-North Commuter Railroad Co., New Plan Excel Realty and New York Life Insurance. SL Green acquired the property in 1998 and has completed an $84 million capital improvement program that included a lobby upgrade, façade repair, new storefronts and significant leasing related tenant improvements.
For more news and information visit Blumberg Capital Partners.
The New York branch of the Bank of China has provided a non-recourse loan of approximately $120 million to W.P. Carey & Co. for the New York Times Company's Midtown Manhattan headquarters. Carey bought the property this past spring in a $225-million sale-leaseback deal for 21 floors of the building, leasing the space back to the New York Times for 15 years with an option to repurchase the property in the 10th year for $250 million.
"Despite the fact that a large number of lenders remain on the sidelines, especially for loans over $50 million, we continue to see strong interest for loans on high-quality properties that are owned by strong, experienced sponsors," said Steve Kohn, president of Cushman & Wakefield Sonnenblick Goldman, after securing the loan for Carey. The New York Times and joint venture partner Forest City Ratner Companies developed the 52-story tower over a two-year period beginning in 2005 at a cost of approximately $800 million; Forest City still owns the building's remaining 750,000 square feet of space accoring to CPE.
For more news and information, visit Blumberg Capital Partners.
Newmark Realty Capital, Inc. has arranged financing in the amount of $64,700,000 for Carillon Point, a 26 acre mixed-use property located in Kirkland, Washington, according to a Commercial Property Executive article. Michael Taylor of Newmark secured the financing for the owners with John Hancock Life Insurance Company. The loan has a fixed rate, a 20 year term and is amortized over 25 years. Mr. Taylor had arranged the original financing on the property in 2001, a debt replaced by the new fixed-rate loan.
Carillon Point includes 445,000 square feet of Class A office space, the boutique 100 room Woodmark Hotel and a 200 slip marina. The land has been owned by the same family since World War II and was developed to its current use between 1989 and 1991. "Carillon Point is one of the premier properties in the regions, and there was extremely low leverage on it, but the biggest challenge was its size," Taylor told CPE. "In this market, few lenders are making loans over $25 million, and for loans over $50 million, there are even fewer. For this property, we had lenders compete for it, but it was less than a handful; three years ago there would have been dozens."
For more news and information, visit Blumberg Capital Partners.
Blumberg Capital Partners was featured in this month's Real Estate Forum Magazine in an article titled "From Policy to Progress".
An excerpt:
Positive results from the banking stress tests have further validated this position. Some observers credit the transparency of the financial institutions with improving investor confidence, helping to rally the stock market in the past few months.
Blumberg contends, however, that there is a false sense of economic prosperity within the banking sector, which is only going to drag out a recovery. "We know that leverage is the enemy of this economy. So we need write-downs. by reversing course on these programs, you are telling capital sources, 'Don't rely on anything we say'," he states.
To read more of the article, click here.
With 54% of delinquent loans in Fitch-rated transactions moving from 30 days to 60 days in the last month, Fitch Ratings has placed 238 commercial mortgage backed security (CMBS) bonds — valued at $9 billion — on Rating Watch Negative (RWN) as part of its ongoing review of the CMBS portfolio according to a CPN article. The downgrades are the result of loss expectations and reflect Fitch's prospective views regarding commercial real estate market value and cash flow declines.
"Fitch believes that the global economic downturn is now close to its trough," Bridget Gandy, managing director of Fitch Ratings' financial institutions team, said in a statement. "Nevertheless, banks globally will continue to operate in a tough environment, as loan impairment charges rise as more companies default and unemployment rates continue to worsen," she continued.
For more news and information, visit Blumberg Capital Partners.
