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CLEVELAND, OH-Daniel P. Walsh Jr., managing director of the Private Equity Group for KeyBank Real Estate Capital, reports an unusually high level of refinancing coming across his desk: the 2008 pipeline for refinance thus far, he tells GlobeSt.com, is double what the bank did for the entire year in 2007.In theory, the time is right for a refinancing, as KeyBank clients have clearly realized: interest rate reductions have dropped the underlying Treasury rate to the 3s right now.But despite the favorable math, the decision to refinance — like all debt and equity decisions these days – is dependent on several factors, and subject to tighter underwriting as well. For many firms, the decision to refinance comes down to whether they believe capital will be more available at the end of the year or not.

There are too many unknowns, Walsh says, leading him, and others, to advise would-be refi borrowers to wait the market out if a loan has more than a 12-month term. “If there is any meaningful term left on the loan it shouldn’t be refinanced now,” he says.Less than 12 months? “You may as well get on with it now. It is hard to say whether the market will be any better by the end of the year, and it could be worse,” Walsh says. “Until the market finds it bottom it is hard to have any kind of clarity or optimism.”

Chris Hunter, an attorney with Morgan Miller Blair, notes favorable rates have not loosened the purse strings at many lenders. “What is interesting is that about a year ago for a good property you could borrow between 100 to 120 basis points over the 10-year Treasury. Now the rate has come down but lenders are charting about 200 to 300 basis points over the 10-year Treasury.”Lenders are also requiring much greater equity from owners even on refis, he adds. A refi on a project with 65% LTV may well be a bargain for a borrower. Anything over that, he says, will end up costing a lot more. For instance, he is currently working on a refi of a mobile home park for a client, which is receiving a rate of 5.57%. Right now, lenders are providing their best rates (5.5%) to class A developments – but the mobile home park is being financed at a very low 25% LTV. “That is very low risk from the lender’s perspective, and worth paying for.”

Richard Swartz, a principal with Cushman & Wakefield Sonnenblick Goldman, sums up the catch-22 for refi borrowers: “On one hand, we are at very low interest-rate cycle,” he tells GlobeSt.com. “On the other hand, it is a very difficult environment in which to execute. That results in higher spreads and a lower proceeds level, and occasional levels of recourse requirements.”"Lenders are more interested in a safe loan that underwrites well, versus going after a development loan at a higher spread,” Swartz says.

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