Insights from the 2010 MBA-CREF Conference tagged:

Insights from the 2010 MBA-CREF Conference

Posted by in Brian's Blog, Commercial Real Estate

This report is from one of my funding sources who visited the 2010 MBA-CREF Conference in Las Vegas.  The attendance of the event was around 2,500.  The attendance consisted mostly of mortgage bankers/brokers and lenders, as well as service providers.  Here is his feedback on the main themes from the convention.

  • The tone:  There is “cautious optimism” that the credit markets are beginning to be rebuilt.
  • First trust capital:  There are CMBS “green shoots” but they are fragile.  However there are a lot of smart people working on the rebuilding the CMBS machine, and we should start to see traction in 2010.
  • Opportunistic capital:  This capital has formed and is ready to deploy.
  • The assets:  Assets remain trapped with the legacy lenders.  Assets “marks” are not yet at a level that will allow the new capital to participate.
  • The delay:  Assets have been slow to mark due to the dramatic value declines.  The “group view” was that time would solve the problems.  This view is beginning to fade, as new valuation realities are starting to be accepted.

First Trust Capital

There is new capital forming to provide long term fixed rate loans at the following criteria:

  • Loan to Value:  65% (based on 8-9% cap rates)
  • DSC:  1.25x-1.30x with 25 year amortization with 6-8% coupon
  • Rent rolls:  Real underwriting on vacancy, market rent, roll over, and major tenant exposure

Opportunistic Capital

This capital is in place and ready.  However, this is a very fragmented market, made up of new players, small funds, and entrepreneurs.  These firms (like Commercial Capital} will provide capital for:

  • Bridge loans
  • Note purchases
  • Note financing
  • Loan restructures

This is a very niche segment and is now driven by primarily unleveraged private money.

Suspiciously Absent from the Conference:

  • Large money center banks
  • Investment banks (none with a major presence)
  • Legacy non-banks (no major presence)

New Players

The three new players that have emerged in this market are:

  1. Note sale advisors:  These advisors represent lenders who want to quickly rid their balance sheets of bad loans.
  1. CMBS special servicers:  These are the most active sellers of assets (notes) because they are a closed end fund and they do not have a balance sheet or a franchise to protect.  We expect CMBS servicers to dominate the private loan sale market in 2010.
  1. Special asset managers:  These are bank workout people.  Their first choice is to extend and restructure, and protect their balance sheet and their franchise.

Summary

The industry now has three major themes:

  1. First trust capital:  In the early rebuilding process.
  1. Opportunistic capital:  Raised and ready to go, but this is very fragmented for borrowers to navigate.
  1. The assets:  The capital markets have progressed more than assets.  The new capital cannot deploy at 2007 values.  The assets have yet to take the write downs needed to allow the new capital to deploy.

For all of your commercial needs, give me a call at 770-908-1672 and I will most likely be able to help you.  At the very least, you will get straight and accurate answers.  Call me today!

Brian Peart