The Full Nelson

Give More Thanks for Financing

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A few weeks ago, I gave thanks for the NYC condo market which has helped fuel the recovery of the investment sales market. Equal or more credit must be given to the availability of attractive financing.

It appears that NYC property sales will approach normalized 2006 levels this year with $25B in anticipated trades. This is three times 2009, but still off 2007's peak of $62B. That being said, 3Q11 proved to the busiest quarter forManhattansales since 1Q08, with a total of 190 properties changing hands.

The availability of attractive financing certainly had a large part in this. With ten year treasuries ending the quarter at 1.92% and Libor having reached historical lows, lenders can offer incredibly attractive loans.

Mortgage rates are now below 3.5% for five year, multi-family money and only up slightly to 4-4.5% for other quality, stabilized asset classes. Meanwhile, well qualified developers are securing construction financing again, albeit at more conservative loan to project values.

Larger institutional loans have also become plentiful. Despite the CMBS pullback, $100m sales have returned to the headlines. There have been 47 to date, which is the most since 2007. Life companies and mortgage REITS have helped fill the void, providing a record $15.7B in financing in 2Q11, particularly for the sub-A tranches.

Life insurance companies, mortgage REITS, and Agencies have emerged as the most active lenders inManhattan, primarily focused on core-type activity, a continuance of a nationwide trend. For example, TIAA-CREF continues to be active, providing $121.1M financing for RFR Holdings on275 Madison Ave.Other players, such as Bank of China, originated a $400M mortgage on200 Fifth Ave. CMBS may see a continued pullback in 2012 as initial forecasts are between $20 and $30 billion., due to market volatility.

Massey Knakal's Capital Services Division has been busy helping clients take advantage of this window of opportunity. They recently announced the closing of two loans inManhattanandBrooklynfor total proceeds of approximately $8.0 million.

A $5.8 million loan, that was used to refinance an existing construction facility, was secured for an 18-unit apartment building located inBrooklyn's Park Slope. This was a newly constructed property built to condo specifications.

"Even though the lender quoted the loan at a time when the building was vacant, we were able to get the borrower full proceeds as if the property was fully leased,” said Garrett Thelander, Massey Knakal Capital Services Managing Director, who exclusively handled this transaction with Director Preston Flammang.

Additionally, a $2.1 million 12 year refi was secured for a 5,000 square foot, mixed-use property inManhattan'sGreenwich Village.

Director Morris Betesh also reported a loan commitment on a partially leased retail piece inBrooklyn. “Although the borrower's existing lender asked for full recourse, we were able to negotiate a lower rate without any recourse from a new bank who has entered the space.”

Scott Aiese, Director, also added that there were other new lenders pouring into the space including hedge funds, which are offering structured products. Scott recently received a commitment for a multi-family property in Brooklyn's Greenpoint neighborhood with a loan amount 25% greater than the borrower had received directly from banks. The non-recourse quote at 4.2% for 7 years was achieved by approaching 27 lenders. While Massey Knakal found the best debt partnership, many lenders required restrictive structures, such as principal repayment guarantees and on-going covenants.

This underscores the need to always shop for the best loan. Prepayment penalties, recourse, financial hurdles, financial reporting, and underwriting are key to consider. Although an existing lender may offer an attractive rate, terms need to be examined as well.

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