Lenders Foresee Big Increase in Loan Volume

The 43% figure compares to 21% who expected to lend $2 billion to $4 billion last year, according to the JLL Lenders' Production Expectations Survey. The number of lenders that expect to lend more than $4 billion jumped up 6% from 9.3% in 2009 to 15.2% in 2010.

Bart Steinfeld, managing director of Jones Lang LaSalle's real estate investment banking practice, said that lenders the company spoke with "giving borrowers 24-plus month extensions in order to avoid foreclosure on high quality, well-located assets." With more than $1 trillion worth of commercial real estate loans expected to mature between now and 2013, "It's no surprise that a majority of borrowers are placing significant importance on restructuring those loans," Steinfeld says.

However, many financial institutions don't want to hold on to assets and now are coming to terms with the fact that they can no longer extend and pretend, Steinfeld adds. "They're now realizing it makes good sense to move these assets off their balance sheets to create greater ability to originate loans this year," he explains.

More lenders this year expressed willingness to lend more on single-asset acquisitions, with 56% willing to lend $50 million and more for such deals. That's up from 2009, when JLL found that the majority of lenders would go to only $10 million to $25 million on a single asset.

"A few life companies and investment banks we spoke with indicated that they're willing to lend $150 to $500 million on large, single asset acquisitions in 2010," said David Hendrickson, managing director of JLL's real estate investment banking practice. The life companies estimate that they will allocate substantial portions of their funds to refinancing loans that are maturing.

JLL's survey shows that liquidity within the capital markets "is expected to turn from a trickle to a slow-but-steady flow in 2010," but underwriting standards will remain tight and loan-to-value ratios will fall predominantly between 50% and 70%. "A number of lenders have indicated an interest in bridge loans for speculative development projects while yields are still high and spreads are compressing on the best projects," but many lenders plan to steer clear of speculative projects. "One life company and one commercial bank respondent noted that each would never lend on speculative developments again," JLL says.

Following the issuance of nearly $1 billion in CMCS loans in 2009, 48% of those surveyed said that they expect CMBS issuance to range from zero to $10 billion in 2010, while 27% predict production of $10 billion to $20 billion and an additional 21% expect $20 billion to $30 billion.

JLL managing director Noble Carpenter notes the increased lender interest in selling sub-performing loans. "Depending on the remaining term, interest rate, property type and market, over 45 percent of survey respondents indicated a willingness to sell these loans below 60 cents on the dollar, Carpenter says.

Wes Boatwright, another JLL managing director, points out that bid-ask spreads are narrowing for asset, REO and loan sales. This should be the the impetus many lenders need to bring large and small balance loans and REO to market,Boatwright says.

Jones Lang LaSalle conducted its survey with 60 nationwide lenders through a face-to-face questionnaire over several days during the recent Mortgage Bankers Association's Commercial Real Estate Finance/Multifamily Housing Convention and Expo in Las Vegas. Those surveyed included a mix of insurance companies, commercial mortgage-backed securities dealers, private equity lenders, commercial banks and government agencies.