The latest report from the Mortgage Bankers Association shows that there is a lot of mortgage debt available to commercial real estate investors, and lenders are plentiful. According to the National Real Estate Investor, "The mortgage markets have been helped by low interest rates, improving property prices and strengthening fundamentals." This environment has led to more borrowers qualifying for loans and more lenders making capital available.
Hotel investors are beginning to pay all cash first for properties, then layering in debt later to move deals along quicker. According to HotelNewsNow.com, a hotel buyer purchasing a hotel all cash and paying off existing mortgages, and then replacing the debt with lower-cost financing is not a new idea, but one that has increased around the industry as the transaction environment has been slow moving over the course of 2012 thus far.
Private equity firms are in a prime position to become the next big investors in the senior living segment of multi-family. According to the National Real Estate Investor, private equity groups are looking for places to put their money to work amid poor economic conditions and a rather lackluster commercial real estate market. Investors are drawn to the market due to the sheer volume of seniors who might need special housing, in addition to current occupancies rising and the lack of new construction under way.
Commercial property loans across the nation rose to their highest level since 2007 during the third quarter as banks, insurers and government-backed finance companies increased lending. According to Bloomberg, new loans for commercial real estate climbed 98% from a year earlier and 10% from the second quarter. The total dollar volume of loans rose to around $31 billion from $28 billion the previous quarter. The surge in loan originations likely is focused on Class A real estate in major markets.
The role of special servicing is continuing to increase due to the nose-dive commercial mortgages have taken during the credit crisis. This is causing many in the commercial real estate industry to begin to grow in concern over the fate of CMBS due to the large influx of loans and ownership changes. According to GlobeSt.com, investors are becoming increasingly skittish over potential conflicts between existing CMBS borrowers and the ownership interest in the special services. Fair market valuations and special servicers' expansion into related fee-generating businesses are also attracting market attention.
After receding in May and June, the delinquency rate for CMBS loans 30 days or more past due climbed 51 basis points to reach 9.88% in July. According to the National Real Estate Investor, the rate is the highest in the history of the CMBS market. The increase can greatly be attributed to new reporting standards by some special servicers. For example, if a special servicer is considering a loan modification, it is now standard practice for them to also initiate the foreclosure process to expedite matters in case that modification doesn't occur. This drives up the delinquency rate.
Proactive investors are beginning to snatch up distressed properties across the nation that in total carry tens of billions of dollars in underwater commercial real estate loans coming due by the end of 2012. Middlemen, known as special servicers, on these troubled commercial mortgages are hired on the behalf of investors to work out bad loans and thus have a front-row seat at the auction when the assets are sold. Investors in turn could earn a good-sized return just from fees for handling the special servicing of the mortgages.
Though loans that back commercial mortgage-backed securities (CMBS) in the years before the financial crisis are becoming delinquent in continually greater numbers, analysts still expect the amount of defaults to decline in 2011. The main factor to support this claim, according to the National Real Estate Investor, is that an ongoing recovery in the commercial real estate market is helping to resolve loans. With more deals occurring, it is easier for special servicers to have a better idea of what a property is worth in the marketplace.
Real-estate firms known as special servicers are picking up the pace of working through bad loans and dealing with an influx of sourcing loans backed by commercial-mortgage-backed securities (CMBS). According to The Wall Street Journal, a total of $90.9 billion in loans are in need of work, compared to $73.8 billion at the end of 2009. The pace at which these loans are being resolved has picked up pace, with $27.9 billion recovered by special servicers in the third quarter, compared with $8.9 billion in the first quarter.
Despite the economic hangover that has been the first three quarters of 2010, the commercial real estate (CRE) market is finally finding its rhythm and is ready to get back to its victorious ways. According to an article from PRWeb, institutional investors have switched from defense to offense making it clear that buyers are alive and well and that the outlook for the CRE market is healthy. Recently a lot more deals have been getting done and the overall consensus is that CRE will come out of the recession just fine.