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This spot is normally reserved for people and issues beyond the norm. But the credit crisis has given birth to a rather shaky lending environment in which Adam Petriella recently found himself embroiled. His story, originally recorded in the August 27 issue of Debt & Equity Journal, appears here specifically because it is not the exception but the growing norm. The director of Marcus & Millichap Capital Corp. in Los Angeles, was battling with a lender that wanted to change the spread on a loan the borrower rate-locked several weeks ago. The lender, he explains, took advantage of the adverse market condition clause to change the terms on the loan. But Petriella expressed his confidence at the time that he could either change the lender’s mind, or, at least, work out a compromise. “It is doable,” he said, “even as the market goes crazy.” DEJ spoke with Petriella to get his behind-the-scenes view of how to get deals done in this suddenly volatile market.

DEJ: How do you think you can get this particular lender to see things your way?

Petriella: This particular borrower–this is a $30-million loan–locked the rate when T-bills were at 490 and locked the spread at 140. That was three weeks ago. The T-bills are now at 460, but the lender still wants to increase the spread to 200. Our argument is that it can’t have it both ways–T-bills are now lower, but the lender still wants to raise the spread. How will we change the lender’s mind? There are number of ways, starting with the volume of business we bring to it. And there are other issues on the table I can’t talk about.

DEJ: So you are using the aggregate business you bring this particular lender to help this borrower.

Petriella: Exactly. At the end of the day, getting a deal done comes down to the strength of the borrower, the business plan and the asset. But if a lender is still squeamish, it can come down to how well a broker can muscle the deal through. We have no problem jumping in the middle of a threatened transaction and saying to the lender, ‘Look, we have brought you a lot of business, so please do this for us.’ In some cases, it has worked and in some cases, we have had to compromise. But we usually get something back.

DEJ: Are you finding there is a flight to quality for brokers now?

Petriella: Oh, definitely. In the past few years, the lending environment has been so good that a lot people didn’t need an intermediary. Now though, in the past two months, I have heard from people who wouldn’t return my calls over the past two years.

DEJ: What are they asking for, help closing a deal?

Petriella: That, and answers to a lot of questions about what is happening.

DEJ: What kind of questions have you received in, say, the past two weeks?

Petriella: I’ve been getting a lot of calls asking if there are any IO loans left. The answer is there are, but they aren’t Wall Street loans, and it has to be a class A property, a fabulous borrower and low leverage. I’ve been asked about CMBS and conduit loans and whether it would be smarter to go with a short-term loan with an option to buy out the pre-pay until the conduit market becomes more competitive. A lot of people are weighing whether to do a bank loan as a bridge until the rates come down in conduit loans.

DEJ: Are there any bright spots besides class A properties?

Petriella: Interestingly, another active area is with developers that are repositioning properties with deferred maintenance or high vacancy rates. These are non-bank lenders–that is, Libor-based lenders–but there is still a lot of money out there for someone who wants to rehab a building and then get a permanent loan in 24 to 36 months. I just closed such a deal in Sacramento, and am in contract for another one.

DEJ: Why is that money still available?

Petriella: It’s not subject to the gyrations in the credit markets. That pension fund money is being invested for these sorts of projects.

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