But while the debt markets improve for top borrowers and assets, capital is slow to flow elsewhere.
The commercial real estate community is breathing a big sigh of relief. It has weathered an economic and financial storm that wiped out some of the most venerable firms on Wall Street, caused the credit markets to seize up for most of 2009, and wreaked havoc on property markets.
But the nascent recovery in the debt markets remains uneven. While the financing climate has returned to normal for stabilized, institutional-quality assets in core markets, it's a different story for assets that don't fit into that category.
“That's the way a market works, and that's the way things develop,” says David Twardock, president of Prudential Mortgage Capital Co., a lender based in Newark, N.J. “It starts with the safest stuff, and then gradually it works its way out.”
Borrowers seeking financing on unstabilized assets or new construction, or whose properties are in tertiary and secondary markets, have seen little improvement in the flow of capital, adds Twardock.
To help fill the void, Prudential Mortgage Capital has just launched the Agency Gateway program, which provides short-term loans for multifamily property owners seeking to refinance or acquire properties that do not qualify for a Fannie Mae or Freddie Mac permanent loan. The company will provide loans of $5 million to $25 million secured by fully constructed or renovated multifamily properties that are well located but have not yet reached stabilized occupancy levels.
Prudential Mortgage Capital provided $5.75 billion in financing to the commercial real estate industry in 2009, down 32% from the prior year, yet the company climbed from No. 8 to No. 4 in NREI's ranking of top lenders. That's because many lenders posted an even bigger drop in loan volume last year.
“We were surprised in the second half of 2009 how few transactions there were in the market,” says Twardock. “We had a pretty active first half of the year, despite the fact that it was a frightening roller coaster.” The company's lending goal this year is $7 billion or higher.
Buy low, sell high
Matthew McManus, chairman of Philadelphia-based NAI Bluestone Real Estate Capital, says that after a lengthy hiatus a growing number of lenders are starting to heed the advice that a down economy is the best time to make loans.
“Lenders and investors have been playing defense for the past 12 to 36 months,” says McManus. “A lot of the defensive tactics have played themselves out. It's time to get money deployed because if not now, when? When values go back up again? You want to invest while asset values are low and try to sell high.”
NAI Bluestone arranged $270 million in commercial real estate financing in 2009, ranking it No. 18 on NREI's list of top financial intermediaries. The real estate investment banking firm expects to double that amount in 2010.
Both the health care and multifamily sectors are generating an abundance of financing opportunities, according to McManus. “Student housing continues to be a bright spot where we are active in raising debt and equity for the sector in ground-up development as well as existing developments.”
On the multifamily front, last August, NAI Bluestone Real Estate Capital secured a $44 million senior construction loan on behalf of Norfolk Housing LLC for The District at Old Dominion University, a 909-bed student housing facility in Norfolk, Va., The project is slated to be completed this August.
In the health care sector, NAI recently arranged $20 million in debt and equity financing for a 30,000 sq. ft. medical office building under development in Bucks County, Pa. A hospital system will account for 50% of the rent roll and private doctor offices will account for the other half. The target completion date is winter 2011.
A year from now how will the industry reflect on the lending market in 2010? McManus offers a favorable response. “It's going to be an upside surprise that the return of capital to real estate came back quicker than many people predicted.”