The distressed commercial real estate market has made it difficult for potential property owners and opportunistic investors to secure funding for new deals, aswidespread losses on such assets have led banks to shy away from extending credit in recent months. But according to new data from Jones Lang LaSalle, that tide appears to have turned, with a growing number of lenders to the commercial real estate sector anticipating an increase in loan production this year.
Forty-three percent of respondents to Jones Lang LaSalle's annual survey expect their loan production to range from $2 to $4 billion in 2010-a number that is more than double the 21 percent that reported sourcing in this range for 2009. Showing even more future optimism, 15.2 percent predict they will lend more than $4 billion this year, and nearly 70 percent of respondents say their loan production will ramp up to $2 to $4 billion in 2011.
Jones Lang LaSalle's 2010 Lenders' Production Expectations Survey-administered directly to 60 nationwide lenders through a face to face questionnaire-included a mix of insurance companies, commercial mortgage-backed securities (CMBS) dealers, private equity lenders, commercial banks, and government agencies. It was conducted over several days during the Mortgage Bankers Association's Commercial Real Estate Finance/Multifamily Housing Convention and Expo in Las Vegas last week.
""Lenders we spoke with say they'll be giving borrowers 24-plus month extensions in order to avoid foreclosure on high quality, well-located assets,"" said Bart Steinfeld, Jones Lang LaSalle's managing director of the real estate investment banking practice. ""With more than $1 trillion worth of commercial real estate loans expected to mature between now and 2013, it's no surprise that a majority of borrowers are placing significant importance on restructuring those loans.""
But Steinfeld noted that many financial institutions don't want to hold on to assets and now are coming to terms with the fact that they can no longer Ã¢â‚¬Ëœextend and pretend'. ""They're now realizing it makes good sense to move these assets off their balance sheets to create greater ability to originate loans this year,"" he said.
The Jones Lang LaSalle survey also revealed that lenders are becoming more willing to lend larger sums for a single-asset acquisition. Fifty-six percent of respondents said they will lend $50 million or more for the purchase of a single property. Last year, most respondents were only willing to lend up to $25 million for one property.
As for the sectors that lenders would most prefer to lend, 27 percent say theyÃ¢â‚¬â„¢ll single out multifamily for their loan dollars, while another 21 percent say theyÃ¢â‚¬â„¢ll focus on the office sector in 2010. Hotels stand out as the sector to which lenders are least likely to lend, but Jones Lang LaSalle says a select number of lenders indicated an interest in hotel investments given their belief that the sector is at its bottom.
According to the survey results, there is a significant increase in the number of lenders who are selling performing and non-performing loans. In addition, these lenders are prepared to accept significant discounts in 2010 to create liquidity and to rid themselves of these non-core or problem assets, Jones Lang LaSalle said.
Performing notes are typically selling for 70 to 90 cents on the dollar, while sub-performing, or Ã¢â‚¬Å“scratch and dentÃ¢â‚¬Â loans are being offloaded for below 60 cents on the dollar.