Writing from the Acela again, en route to Back Bay Station after a short trip to New York to attend a CREFC After-Work Seminar we hosted. The space at our Bryant Park offices was full – I took a seat in the last row next to interim CEO John D’Amico (he seemed really pleased with the turnout). The meeting was the latest in a series of after-work seminars that CREFC is holding throughout the country (next stop is Dallas). The topic – “A Case Study in Lending from the Perspective of Both Portfolio and Conduit Lenders” – was moderated by Whit Wilcox (HFF) and included panelists Michael Shields (ING Real Estate Finance), Mike Doyle (CIGNA) and Schecky Schechner (Barclays Capital). The panel explored their thinking on loan applications from the perspective of the three corners of the CRE banking world – life insurance companies, bank balance sheet lenders and CMBS conduit lenders.
The discussion began with a summary of where we stand. Pace for domestic CMBS issuance is around $40b in 2011. Obviously, a small fraction of 2004 – 07, but still a big jump from 2010 (let’s let ’09 alone). Nine US deals have priced so far this year that I’m aware of, and the pipeline is equally encouraging, with reports of six more deals slated for May and June. It’s important to note that this activity is occurring at a time of relatively significant uncertainty – no one is quite sure what the landscape will look like when the regulators finally declare victory (especially as it regards risk retention (see also here), and we’re still waiting to see how 2.0 best practices will work their way into deals (for instance, whether issuers will adopt the form reps developed by CREFC). Meanwhile, the life companies, as a group, seem to have been the most obvious beneficiaries of the (heretofore) sluggish recovery of CMBS lending – they will essentially match CMBS lending this year and are similarly in-line with bank portfolio lending.
The presentation asked the panel to discuss their approach to a series of hypothetical properties – the stabilized, suburban office complex, the un-stabilized downtown office tower, the grocery-anchored retail development, the urban boutique hotel – and to explain their strategies for hitting the bid. The similarities among the panelists analysis was striking as each walked through their concerns on the underlying fundamentals (location, tenant mix, sponsorship, recourse). The major differences? Surprisingly (or maybe not surprisingly) not nearly as pronounced. At this point in the cycle, the Life Co’s and Banks are competing (more or less) for the same deals as the CMBS lenders (albeit, it seems these days, the Life Co’s are winning). There was some concern expressed that this may drive CMBS lenders to lowering underwriting standards. I’m less cynical on this point – from what I can tell, CMBS lenders – for these past four years cast as the Azazel of all that is poor underwriting – are looking at the same fundamentals as everyone else.
After the event, I joined some colleagues for dinner with clients … clients that were delayed a full hour at the office. More green shoots, I suppose. It will be a really good sign when industry "After-Work" seminars don’t get rolling until at least 8:30.
By Matthew Clark.