by Todd McNeill
For the first time since the credit crisis began in late 2008, the nation’s banks originated more new loans than were either paid off or liquidated. In other words, mortgage originations exceeded the outflow of maturing and liquidated loans in 2012. Although the increase on a net basis was small according to TREPP BANK NAVIGATOR, it signifies an important indicator for the commercial real estate industry as 2010 and 2011 were years in which this ratio was reversed. To be specific, banks with the 100 largest commercial real estate portfolios increased their net outflow of loans by $3.7bl from the end of 2011 according to Commercial Mortgage Alert. As a net result of this, the amount of non-performing loans as compared to the balance of the banks increasing portfolios has continued to dwindle.
This positive trend is primarily based on the bad loans bottoming out and a renewed confidence in commercial real estate from the banks. While 2011 maturities were peaking for banks, the amount of loans maturing from now until 2017 is still significant, so looking ahead there will be plenty of opportunities for banks to continue and, hopefully, to accelerate this trend.
With half of 2013 almost behind us, banks have steadily shown interest in moving up the risk spectrum into renovation/reposition loans, and banks are also looking at construction loans. Well-underwritten construction loans are getting multiple term sheets with intense competition for the Class “A” construction projects. Reposition deals are also receiving attention from the banks as well as numerous private lenders. Private Lenders have been forced to compete by lowering their rates from 2009/2011 levels as more banks have reentered the CRE lending market.
As competition intensifies banks will become more competitive with their structure. There is plenty of limited recourse and, in some cases, non-recourse bank loans quoted with favorable pricing depending on the deal dynamics. In addition, longer fixed-rate terms of five years or more are being quoted from banks.
Another leading indicator of the banking sector’s health is the lack of good note-buying opportunities in 2013. Most loans that are available for sale are coming from private investors who purchased these loans in bulk from the banks back in 2010 and 2011. These investors understand the collateral better and were purchasing the notes with the intent to work through the portfolio of loans and maximize the value of each. An investor that purchases a loan in most cases must have the tolerance and ability to foreclose and operate the real estate and therefore is in a much better position to maximize the value of the loan than a bank would be regardless of how healthy the bank may be. Bottom line, the banks now have far fewer bad loans to move off their books, and this has further accelerated a bank’s willingness to do new CRE loans.
Since 1992, Metropolitan Capital Advisors has arranged over $5 billion of loans that were placed specifically with banks. Underwriting and understanding “bank deals” differentiates MCA from traditional finance intermediaries who spend their time representing Life Insurance Companies on reciprocal fee agreements (i.e. Correspondent & Servicing Agreements). MCA understands how to make the bank loan process competitive, plus how to increase the certainty of execution by using its knowledge base of bank underwriting and metrics.
Please contact any of MCA’s Senior Directors at 972-267-0600 / www.metcapital.com to further discuss your transactions that may involve using bank or any other type of commercial real estate finance instrument.