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Business Services Industry

Some lenders make cautious return

Real Estate Weekly, April 21, 1993 by Therese Fitzgerald

Like a tortoise cautiously venturing out of its shell, some traditional real estate lending sources are re-entering the market. But while many domestic lenders say they are back or that they never left, industry experts say these lenders are willing to look again, but they are not really biting.

The word in the real estate community today is there are funds available from traditional sources - savings and commercial banks and insurance companies - for the right projects. What constitutes a right project? The right project is a multi-family building, a well-tenanted and well-anchored shopping center or maybe a co-op with 85 percent of the units purchased. The right project, for the most part, is still not a commercial office building. Loans being made today also tend to be refinancings or rollovers and not new construction.

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Marine Midland Bank has recently targeted three geographic areas for increased real estate lending. Two of these "districts" are for the Buffalo area and Northern New York State. A team of four bank executives are focusing on new business in a third Metro New York district.

Pat Tarrant, vice president, Marine Midland, said in the first quarter of 1993 the bank rolled out its plan to beef-up lending in the $3 million to $25 million range to "experienced developers," both existing clients of the bank and those with which they can form "lasting relationships."

She said they would consider refinancing office buildings with steady cash flow, credit tenants, and long-term leases as well as retail and multi-family properties. She also said they would make new constructionloans for residential projects and significantly pre-leased retail projects where the takeout financing was in place.

"We're being conservative, of course, in the new lending," she said.

While recent loans have been made mostly to multi-family and build-to-suit retail, Joseph DeLuca, executive vice president, Chemical Bank and head of the Chemical Real Estate Finance Group, said he is encouraged by the activity in the market and the introduction of some liquidity via REITs and other vehicles.

"I feel fairly upbeat aboutsome liquidity and value stabilization," he said.

Don Johanson of the Real Estate Lending Division of Fleet Bank said they are "looking" at doing real estate transactions for "high-qualityprojectsandhigh-quality sponsors."

Ken Bowen, who recently joined City & Suburban Federal Savings Bank, said his institution has been looking to double its output to multi-family and commercial borrowers in the under $2 million category. And, he said, they are finding competition on the multi-family deals.

Bowen said he believes this is a good time to be lending.

"You can get deals at 50 percent to 60 percentloan-to-value, which reallyhelps to offset risk," he said.

Maintaining a Presence

Few banks will say they are out of the real estate lending business, but the scarcity of transactions, especially by large commercial banks or money center", leadsborrowersto believemany institutions are in hibernation.

"I haven't seen any deals by [commercial banks] in recent history," said Mark Tietelbaum, managing director, Debt Equity Advisory Division.

But, while some banks are returning, Robert Corso, president, Robert Corso & Company, said he does not see many changes in the climate from one year.

"We're at the same level of interest on all categories," he said.

Pat Leardo, Eastern regional director, Real Estate Consulting, Coopers & Lybrand, which advises lending institutions, said most banks are doing business, buttheirstrictunderwriting criteria distances them from today's deals.

"Institutionsdon'twantto becharacterized as not lending or producing a credit crunch," Leardo said.

Even the large commercial banks, which were badly hurt by real estate-related losses, find it necessary to stay active," said Steve Longua ofMitsubishi Trust and Banking, who is in his last few days as president of the Mortgage Bankers Association.

"I don't think they have the luxury of shutting it down and leaving the market," he said. "They have to maintain a presence."

Conservativeseems to bethebuzzword for all lending today. Steven Wichik, vice president, Fourth Federal Savings, a small multi-family lender, said though his institutionwas virtuallyunscathed by the plummeting values, they are increasing their due diligence.

"We'rescrutinizingandverifyingmore closely," he said.

Some see the insurance companies being a little more active than the banks. Stephen J. Pearlman, director of Finance, JonesLangWootton USA, said the life companies are looking at projects that have more leases and credit tenants, low loan-to-value ratios and high debtservice ratios. Banks, on the other hand, he said, are generally lending to existing customers and pre-targeted borrowers.

Only the most "pristine" construction projects that are 100 to 80 percent leased and already have take-out financing are getting financing today from either source, he said.

Business Services Industry

Some lenders make cautious return

Real Estate Weekly, April 21, 1993 by Therese Fitzgerald

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