Real estate banker says market draws more capital, but remains uneven
- March 14, 2011
There’s more money in the market for commercial real estate, with a bounce back in CMBS (commercial mortgage-backed securities) and more interest from insurance companies.
Yet along with those signs of recovery, John B. Levy said Monday that some properties continue to struggle, avoiding foreclosure through discounted payoffs. That’s when a lender gets partially paid off, but not in full. “We’ve done these with big banks and community banks,” Levy told a Richmond audience of nearly 100 at the Weinberg Land Use Forum sponsored by Hirschler Fleischer law firm.
Levy, a principal with the Richmond-based real estate banking firm of John B. Levy & Co. and a well known industry analyst, drew laughter when said, “A rolling loan gathers no loss.”
Unlike extend and pretend loans that followed the aftermath of the recession in 2008, discounted payoffs allow a property to change hands, with the lender getting paid off, and a new deal being made for a new owner. “We thought there would be no takers for the new loans. Wrong. The new lenders were pretty understanding,” he said.
In one example, his company did a deal for the Meridian Office Complex in Charlotte, a 1.8 million square-foot office and flex property originally built by IMB that had $120 million owned on the loan. “When we got the property a million square feet was vacant. We brought in a buyer for $42 million—all cash, no financing.”
While there is some momentum in the market with investment sales up 50 percent over the past year, Levy characterized the overall market as “uneven.” The CMBS market is projected to do $35 billion worth of business in 2011, up from $10 billion in 2010. In 2007, that market was $240 billion. “If everything goes right, we’ll do 1/6 of what we did in the go-go years.”
Still, there’s more capital, and insurance companies are getting off the sidelines. If Freddie Mac and Fannie Mae are disbanded by the government, Levy said that would open the door to new opportunities for insurers to finance multi-family projects, which currently make up only a small part of their real estate portfolios. “Insurers want some of this business.”