Lenders Tighten Belts In Face of Maturities

ATLANTA—Financing of commercial real estate projects is certainly better today than during the recession, but the loan process has certainly evolved, according to panelists analyzing the capital stack during the RealShare Atlanta conference, held here late last week. And, say the expert speakers on the panels, challenges remain.

“From a bank competition point of view, we really have a very competitive market, both on price and structure,” said Walt Mercer, executive vice president, commercial real estate, for SunTrust Bank. “It settled down for awhile, but it's getting more competitive now. It's a great time to be a borrower. The lending environment generally is fueled by equity looking for yield and there is plenty of it.”

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David Marvin, founder and president of Legacy Property Group, says while there is no shortage of capital for refinancing existing facilities, it's more challenging for development. Legacy specializes in hotel development. “It's available, but at a lower leverage than we are comfortable with. It makes it a little more complicated. As a firm, we were able to weather the storm. We went into 2007 owning a bunch of real estate. We did not give any property back to lenders, we had no nasty lawsuits and we didn't even miss a loan payment. We emerged strong and healthy. What's interesting is how lenders view their borrowers and how they dealt with the recession. It's another wrinkle to the underwriting. But it's not a sin to run into headwinds during a recession.”

Added Mercer, “It's a really important point about how lenders treat people. Everyone had indigestion during the recession. You can't fault them for that. The question is whether the borrowers were transparent and forthright. It's about communication.”

John D'Amico, director of Trimont Real Estate Advisors and the panel's moderator, added, “Pre-crisis, a large loan would be made and the lender would split it into different pieces,” said “They are not doing that now. Senior lenders are very strict. They may make the loan, but they are not carving it into pieces.”

Mercer, too, stressed the importance of communication between lender and borrower. “We look for someone we can work with closely,” he said. “We recently teamed up with an insurance company who worked with us and the borrower as a team in the Washington, DC area. In the application process, we are asking to see the carve outs,” Mercer said. “Honestly, we have run into a few situations where the carve outs were overreaching. It's important to resolve prior to getting pregnant, if you will, with a deal.”

Said Thornton, “We have been putting our carve outs on the terms page. It's important that the borrower have an interest to make the project succeed. The upfront structure should make sure your borrower is working for the same purpose you are which is getting re-paid.”

One looming challenge may be the next wave of maturing loans.

“I have moderated several panels over the last six months with various viewpoints about the upcoming wave of maturities,” D'Amico said. “There's about 100 million coming due over the next couple of years in CRE financing. A good deal of it will be no problem, but I have heard numbers, 25% to 30% that could be impaired. What could it do to markets and the ability to borrow? Where might we be in a couple of years? In a correction or a downturn?”

Thornton said he doesn't think there will be a wave of defaults, but there will be a wave of loans grinding through issues. “Half of our deals are maturing loans and each of these deals will have to be re-capped somehow.”'s managing director, Greg Michaud believes the situation is overblown. “I see it as an opportunity more than anything else. The stuff that can be paid off will be very ugly. Properties will have to be re-jiggered and refinanced. It's an opportunity for all this money that has been raised to go get some yield.”