Top 10 Takeaways From 2011 CREF Conference

by Scott Lynn, Director/Principal

10. Attendance and Enthusiasm were up fueled primarily by the return of the CMBS 2.0.

9. Last year’s job seekers got jobs at some of the 25+ CMBS Conduits that were trolling for business.  Expect $40 to $50 billion of 10 year fixed rate loans to close in 2011 based on 75% LTV/1.25x coverage under careful underwriting that focuses on the rent roll & durability of the income stream.

8. Of the 25 CMBS Lenders, probably no more than twelve are “for real” in terms of ability to fund on their own balance sheet.

7. CMBS 2.0 will be holding its breath as $6 billion is in the pipeline to be securitized during March and April.

6. The dirty little secret is the B Piece market is thin….maybe 3 to 5 real buyers.  Spreads will “have” to widen in order to deepen the bench of buyers.  Correspondingly, there will be upward pressure on rates to absorb the forthcoming product.

5. Extend & Pretend is likely over.  2011 will be the first real year for a variety of capital providers to jump in on good loans for Recaps, DPO’s and Note Sales.  This is the real finance/new deal opportunity for the next 36 months as new lenders seek assets with low basis.

4. Our conference efforts were focused on shaking the bushes for all the bridge capital sources that we could find. The “Lender de Jour” will be the capital providers that will finance these opportunities as assets are pushed off the books of Banks and Special Servicers.  The money is there at a weighted average cost of capital ranging from 7% to 14% depending on product type, leverage, sponsor quality and property cash flow.

3. The Life Company guys were all out in force when not on the golf course….of course.  Life Company money is the best money in the market today in terms of pricing but your deal is usually not attractive to them unless it is a core asset at under 60% LTV (on their appraisal).

2. Albeit few banks attend CREF (at least for the past three years) the ones that did seemed like shell shock was over. The banks are finally ready to talk about a new construction loan for a healthcare or an apartment deal.  They might even finance your distressed debt acquisition with plenty of equity and a strong sponsor.

1. Capital is reforming rapidly almost at a surprising rate.  Our friends are landing at great new places with big checkbooks.  The best line we heard was “If I say “No” to your deal this week, don’t count me out.  I may say “Yes” next week.”

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