Like most, though, he didn't realize just how bad the drop would be. Still the company has maintained its equilibrium – and more – in the current environment. This year Springfield, MA-based Babson will be among the few funds actively lending. GlobeSt.com caught up with Little to discuss how he thinks the market will perform this year.

GlobeSt.com: Let's start with a topic that is in the headlines right now – TARP. Your thoughts on the program as it stands and where you think the Obama Administration might take it.

Little: We are becoming increasingly of the opinion that thegovernment initiatives in this area will be focused on single-family housing. It will be difficult to justify to Congress and to thetaxpayers using tax dollars to save commercial real estate. Can youimagine justifying, for instance, using government money to save aparticular hotel chain?

Also, I think policymakers will conclude that to solve the creditissues we need to address the root of the problem, which was thebubble in the single family housing market. Most of the governmentassistance, I believe, will be focused on shoring up the single familyhousing market, to bolster pricing.

GlobeSt.com: Everybody is painfully aware of the negativedevelopments impacting the lending environment. Is there anything good we can look forward to?

Little: I wish I had something positive to say about that. I see most of 2009 as a bleak story. There won't be many CMBS originations to speak of. And to the extent when the CBMS market does come back it will be mainly used as a way to clear out problem assets. Default rates are rising at an increasing pace. And the stresses of the overall economy will make debt service coverage ratios even tighter.

GlobeSt.com: What are your thoughts on how the new or reformed CMBS market will look like once this credit crisis is past?

Little: Well clearly the capitalization of commercial real estate needs to change. Whether that will continue through CMBS is, as you said, an open debate. I do think the solid properties and transactions will get recapitalized somehow. There is a lot of money still sitting on the sidelines, talented equity that didn't play in 2005, 2006 or 2007 because it saw the bubble coming.

GlobeSt.com: Will Babson Capital Management be lending at all this year?

Little: As a matter of fact we are quite optimistic about lending this year.

GlobeSt.com: What allocation do you have in mind?

Little: We don't have a set target this year, but it will likely be similar to what we did last year, which was $1.25 billion.

GlobeSt.com: What is Babson's lending criteria in this environment.

Little: It hasn't changed because of the economic or credit troubles. We operate on a regional basis, making decisions on that level. Aligned co-investment is what we typically look for. We believe in the concept of long-term sustainable value, so we struggled as valuations peaked out a few years ago. We like strong sponsors and well-located properties; deals at 50 to 65 LTVs with meaningful cash equity in it. That is our sweet spot.

GlobeSt.com: Is there any particular asset class you like right now?

Little: We have historically been large players in multifamily. We also see opportunities coming back in hotel. Retail, as we all are aware, is challenging right now.

Instant Insights /

Babson Capital Management's Robert Little

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