CHERRY HILL, NJ—TD Bank said late last month ithad closed more than 200 commercial real estate loans in 2013, fora volume last year of $3.9 billion, numbers that speak to theresurgence of borrowing as well as lending. Demand shows no sign ofslowing down this year for the US subsidiary ofToronto-Dominion Bank of Canada, even ascompetition has intensified. Gregg Gerken, SVP andhead of US commercial real estate lending for at TD Bank, spokerecently with about the recent past, present andnear-term future of CRE financing.

| How did 2013 compare with what you sawin 2012?


Gregg Gerken: A lot of lenders whowere on the sidelines in 2012 were back in 2013 in a big way. Thebiggest disitinction between the two years was the amount ofcapital that was available, up and down the capital stack: theamount of equity that was available as well as the number of banksthat were back in the market. And you can see it in some of thepublic numbers that are published: CMBS activity was up markedlyfrom '12 to '13.

| Bank of America Merrill Lynch recentlycut its full-year forecast for new CMBS issues. But CRE lendingotherwise shows no sign of slowing down, is thatcorrect?


Gerken: I would have to agree.

| Where are you seeing interest, and inparticular are there markets where you're seeing more interest sofar this year than last?


Gerken: If you were a borrower and anacquirer in '12, you were probably still very focused on thegateway cities: New York, San Francisco, Washington, DC. Through'13, we saw a lot more interest focused on the Bostons and some ofthe other growth markets. In 2014, we're starting to see a lot moreinterest in the secondary cities and, in some cases, even thetertiary markets. Partly that's because some folks would argue thatsome of the gateway cities have reached a pre-2007 high.

| Potential buyers may also feel thateven if they could enter and win these bidding wars, their returnrequirements couldn't be met at these cap rates.


Gerken: There is more concern amongbuyers today on whether there will be a return, because ifyou buy at a very low cap rate and interest rates were to go up,you might not get that same money out of the property unless youhave the ability to increase rents, or if you're buying aturnaround or an opportunistic acquisition. That's also why we'reseeing more activity in secondary markets and those that didn'tpeak as early.

| In those secondary markets, are buyersfocusing on core or opportunistic?


Gerken: Both. Where there is coreavailable and you can buy it for a long-term hold at the rightprice, definitely we see money going there. Because core in thosesecondary, non-gateway markets is probably as overvalued as it isin New York. But wherever there's opportunistic or a potentialvalue play, we see a lot of interest in those properties,especially when cap rates are so low today. Because your exit atsome point is going to come from the value you create. And thatvalue, hopefully, is at a rate that's higher than the cap ratecompression would otherwise be.

| But cap rates in those secondarymarkets are less compessed than in New York, and they'll probablystay that way, correct?


Gerken: I don't think they cancompress as much. There just isn' as much institutional and foreigndemand in those other markets that would compres it to that samedegree.

| Who's especially active in themarketplace?


Gerken: We see pretty much the entiremarket being active, at least in our market. Everyone from theregional developer to the more national in scope, and then up intothe institutions and funds. TD lent straight through the downturn,because we were in a fairly good capital position.

| Even with the greater number of lenderscompeting in the market, is underwriting still moreconservative compared to seven or eight yearsago?


Gerken: I would say so, given theheightened regulatory environment and the fact that any time youcome out of a downturn, banks will become much more conservativethan they were. Our underwriting standards haven't really changedmuch, but by the same token we have to look at more deals in orderto win one. And by virtue of that, I wouldn't say that more bankshave loosened their underwriting standards, or we would be comingin second, third or fourth on deals.


Competition has heated up and whenever that happens, it'sprobably better for a borrower than a lending institution. But forthe most part, underwriting standards have remained prudent andequity going into projects is more than it had been.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.