CRE Financing Update - Ray Walker

I organized a Utah County commercial real estate forum for the Utah County Assoc. of Realtors that was held yesterday. We had excellent presentations by Stan Craft, commercial appraiser with Free & Associates, and Ray Walker with CBRE Debt & Equity Finance. Here is Ray's contact information:

Ray Walker, Senior Vice President
CBRE Debt & Equity Finance
222 So. Main St, 4th floor
Salt Lake City, UT 84101
O: 801-869-8050
F: 801-947-3954
C: 801-918-4599
ray.walker [at] cbre.com


Following are my notes from Ray's presentation.

CBRE represents life companies, local and national banks, direct lender for Freddie/Fannie/HUD for MF and healthcare

Market downcycle in late 80’s/early 90’s was very bad

Credit is frozen to a certain extent, there is plenty of money available at the right price

Land loans are now dead on arrival, must have a defined and strong exit plan
• Banks that are now in trouble are loaded up with land

Utah market hasn’t dropped in Utah nearly as much as some other places
• Approximately 20% drop in values in Utah, 30-40% in other markets
• Utah Co. will likely come out very well in the next upswing

Utah traditionally lags the country, doesn’t go as high or as low

Lenders looking heavily at debt coverage, how are they going to get paid
• Scrutinize tenants on subject property and other properties the borrower owns
• Want global cash flow statement showing all properties owned by borrower

On a purchase, the lender is a partner – on a refinance, the lender is the enemy

Commercial banks hold 45% of commercial mortgage debt
Thrifts hold 6%
CMBS – 21%
Life companies – 9% (most are lending today, 65-70% LTV)

Mortgage debt as a percentage of GDP got above mean, now deleveraging to get back to the mean

On refi’s the lenders are sometimes willing to take a haircut but also want some cash in from the borrower, both share in the pain

Lots of vultures sitting on the sidelines waiting for distressed properties, not real active yet, probably come in small waves
• Private equity groups are paying cash for distressed assets

Life companies – working with borrowers on refi’s so don’t have to foreclose if can avoid

Client getting a 3-1-1 ARM

Thinks it will be 3-5 yrs before finance world is back to normal

MF is a profit-center for Freddie/Fannie, they’ve begun to securitize their portfolio and selling it off, able to shrink their portfolio without reducing lending

Conduits starting to come back (70% LTV, 7-7.25% rate)

Financing on mixed-use buildings – lenders hate mixed-use buildings, the retail/office use always struggles
• Don’t want more than 10% of revenue to come from secondary use

221.d.4 – closed $3b in 2008, have $18b in process, very long process to close (12+ months)
• HUD is saying no more in SLCo except for CDB area
• Utah County will likely have more money available (having to convince HUD that Utah County is worthy of the investment)
o Need more data for Utah County MF market, will help convince HUD

Rates will edge up, not sure what inflation will do

AA corporate bonds are a good benchmark for commercial RE rates, life companies weigh