The lending chokehold extends to unanchored retail centers,particularly in tertiary cities or struggling inner-urban pockets."CMBS lenders are sidelined for six months or so. Hopefully, we'llsee life insurance lenders become more active," Don Farmer, seniorvice president of the south central region for Mill Valley,CA-based Bridger Commercial Funding, told developers, bankers anddealmakers at the DFW Apartment and Investment Brokers' monthlynetworking meeting at Prestonwood Country Club in North Dallas.

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"Is it credit crunch or crisis, depends on who you are. If youare a borrower who needs to refinance, it's a crisis," Farmer said."If you're a seller, willing to go the agency route, there are somepretty good rates out there. It's more of a crunch than a crisisfor those guys." He reported that life companies are offeringall-in rates of 6.25% to 6.5% and floors hovering 6.25% whilecommercial banks' all-in rates range from 6.25% to 7.5%. Agencies'all-in rates are running from 6.5% to 6.15% and finance companiesare ranging from 7.15% to 7.5%.

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Farmer reported that $16 billion of CMBS loans are going tomature this year, the bulk of which were booked at a 7.7% interestrate. In 2009, the industry is poised for $19 billion of CMBS debtrollover. Many of the floaters are fully amortized 10-year loans,inked at interest-only terms.

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Farmer added some borrowers may have bailed on floating-ratedebt by refinancing when fixed rates started to drop. But those whodidn't are facing considerably tougher underwriting requirementsthat lower class properties most likely aren't going to be able tomeet, he assessed. The new rules of the game require more equity,higher interest rates and no cash-outs. And the latest change hasbeen regional banks are getting creative with interest-rate swapsby "holding the borrower to the term with higher prepaymentpenalties," he said.

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CMBS loans constitute 24% of the $3.3 trillion of commercialmortgages in the US. Last year set a record in the industry, with$230 million of CMBS loans getting closed as the finale to athree-year run of spiked activity--and then the death knellsounded. "It was all fueled by very attractive rates, terms and abig push to move properties," Farmer said.

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Sean Bushe, regional loan officer for La Jolla Bank, toldGlobeSt.com that his territories in Dallas/Fort Worth and parts ofCalifornia aren't being as hard hit as would be imagined. Theslamming of the CMBS door has opened the market to portfoliolenders like the La Jolla, CA-based bank although he said moreequity and higher interest rates are definitely in the new formula."It's good from a competitive standpoint. You've still got to becautious," he stressed, "because you don't know how bad it will getor when things will turn."

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In Beverly Hills and San Diego, Bushe said the multifamilymarket's vacancy rate is 1% to 2%, with monthly rents typically$1,500 for a one-bedroom apartment. "If you want to live there, youmust rent. And if you live there, that's what you've got to pay,"he said, pointing out that it's keeping the deal flow moving in themultifamily arena. In Texas, values and operations are "holding upreal well," he added. "In Texas, at least Dallas/Fort Worth,multifamily for two or three years will be really good."

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Bushe blamed the disappearance of California buyers in Texas ascausing the slowdown in sales in Dallas/Fort Worth, which obviouslytrickles over to his industry. The region's 10% to 15% vacancy rateis only part of the reason: some are back looking in their homestate for value-add deals and others have shifted their focus toother cities due to the changing market.

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"The California market wasn't quite as dominated by the CMBSlending as the Texas market," Bushe said. "We are doing a lot morebusiness in California than Texas. Everyone still wants to bethere." He pointed out that its multifamily properties have aclear-cut advantage due to the high cost of single-family housingand lenders' tough stances on home loans.

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Farmer stressed the CMBS culprit isn't its delinquencies, whichis just 0.3% to 0.4%. "We are seeing losses based on perceptionregardless of the performance of the CMBS bond," he said. "Thereality is the delinquencies overall are very, very low."

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Farmer believes CMBS lenders are only sitting on the sidelinesuntil the capital markets calm down. "I think the market's going tocome back. I think 12 months is a realistic time for the market torecover," he said, adding "hopefully by the end of the year" thatthe turn will be under way.

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In April, CMBS had a 473 basis points spread over the 10-yearTreasury: 403 bps on the credit spread and 70 bps for the swapspread. In April 2007, the spread totaled 116 bps: 62 on the creditend and 54 on the swap. Farmer said he believes 250 bps is thebenchmark.

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Libor is volatile and climbing higher like the US Treasury sothe impact in pricing of the swap is widespread. "As for pricing inCMBS, I think the 10-year Treasury will continue to be thebenchmark," Farmer concluded.

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