Trends in the Various Lending Classes within Real Estate

January 22, 2015

In terms of safety and risk, what trends can be seen in the different lending classes? How are we comparing today with the relatively profligate times that we saw in 2006 and 2007? Tom Fink stated that he thinks credit standards have loosened over the last two to three years. As more money becomes available, one of the ways to be competitive is to give the borrower better terms and conditions. In a low interest rate environment like this, projects continue to be performed fairly well once underwritten.

Overall, Mr. Fink thinks across the board people are being cautious. In terms of the different property sectors, office is still suggesting a certain amount of challenge as companies continue to restructure. Retail still has to address the challenge of the internet and amazon. Large malls, particularly in mid-tier markets, are experiencing a lot of stress. In the hotel sector, he thinks the market is coming back very strong.

The bottom line is construction is taking place and there’s more competition for tenants; but, the fact of the matter is the balance of supply and demand. Landlords are still getting decent rents.


Transcript

Aaron Kaiser: Hello, I'm Aaron Kaiser, partner at EisnerAmper and Co-chair of our firm's Real Estate Practice. It's my pleasure today to introduce Tom Fink, Senior Vice President and Managing Director of Trepp LLC. Trepp was founded in 1979 and is the leading provider of information analytics and technology to the commercial mortgage backed securities, commercial real estate and banking markets. Welcome. Tom, in terms of safety and risk, what are we seeing amongst the different blending classes in terms of loan to value by type of property and the debt service coverage ratios as requirements of the lenders today. How do we see that trending and how are we comparing today would be a relatively profligate times that we saw in 2006-2007.
Tom Fink: I think it's safe to say, Aaron, the credit standards have loosened over the last two, three years and as more money, becomes available and is competing for debt.

One of the ways you compete for projects as you give the borrower better terms and conditions. We're nowhere near where we were in 06' or 07'. We haven't gotten back to the crazy world we had back then. We are seeing deterioration, easing of loan covenants. That being said in a low interest rate environment like this, projects continue to be performed fairly well once underwritten. I think there's still a certain amount of discipline in addition to what we track in the CMBS market. We do track quotes and lending rates in the insurance company market and I was looking at the data the other day and they have not pushed the LTV envelope in the insurance company space and they're still being fairly conservative as to how much that they're willing to put on properties, but I think across the board people are being cautious in terms of the different property sectors. I think office is still suggested a certain amount of challenges. Companies continue to restructure though, you know, the idea that people are starting to hire again is probably good for office. I think retail still has to address the challenge of what's the future in the world of the Internet and Amazon. That's a challenge for retail. We continue to see large balls, particularly in mid-tier markets experience, a lot of stress. In the lodging sector, hotel sector, I think you know from the depths of the market and 06' and 07' and 08'. I think the hotel markets come back very strong. We can see a lot of construction and the multifamily market. Some markets are getting overbuilt, but I still think there's a high demand for that, so I don't see. Again, construction is taking place. There's more competition for tenants, but fact of the matter is the balance of supply and demand is such that landlords are still getting decent rents.

 

About Aaron Kaiser

Aaron Kaiser is an Audit Partner and member of the Professional Practice Group and a leader in the Real Estate accounting services group.

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