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A publication of
Summer issue 2015 sponsored by
CRE Finance World Summer 2015
19
loans themselves. A commercial bank tends to consider the overall
business relationship. Alternatively, an insurance company considers
a loan on a stand-alone basis. It’s more of a pure play in terms of
focus because we don’t offer banking services to begin with.
Clay Sublett.
Having been on both sides of the bank, the balance-
sheet side tends to focus more on the relationship, while the firm
side focuses on the fact that the loan is generally non-recourse
and thus the transaction must stand on its own. In short, in the
banking world, you will do a marginal deal for a good relationship.
On the firm side, you’re not going to do a marginal deal regardless
of the strength of the relationship.
Challenging Borrower Asks
Lisa Pendergast. The revival of the CMBS market has seen a
renewed focus by investors on borrowers and their behavior
during the financial crisis. Yet, despite that focus, borrowers
have become more emboldened — in what has become a
‘borrowers’ market — to ask for ‘more.’ What are some of the
more challenging borrower ‘asks’ and how do you blend meeting
those ‘asks’ with holding the line on credit?
Spencer Kagan.
First of all, a lot of the borrower asks we see
have more to do with pricing than credit quality. Given the choice
between profitability and credit, we would rather price something
a little bit tighter and hold on credit rather than give on credit. With
that said, asks for interest-only periods started off as an exception,
but now a short interest-only period is almost expected by every
borrower. Most recently, you’re seeing significant push back on
the part of B-piece buyers with respect to the long interest-only
periods, which is positive from a credit standpoint.
Lisa Pendergast. What about loan structure?
Spencer Kagan.
With CMBS, there’s certainly pressure with
reserves and escrows so we try to find a balance. We’ll sometimes
get a little bit less than what we think is actually needed for tenant
improvements and leasing commissions, but only if we think the
borrower’s going to stay with the property, there’s enough equity in
the deal, and the borrower has deep enough pockets. The reality
is we’re probably collecting around two-thirds of what might really
be needed, but we believe there’s incentive for the borrower to stay
with the property. Those requests come up frequently.
Stephanie Petosa. Any particular carve-out push backs?
Spencer Kagan.
Yes. The one we have the hardest time with is
bankruptcy, voluntary bankruptcy.
Larry Brown.
It feels like many CMBS lenders are currently treating
the interest-only period as the ante to get into the game. We try to
structure around that. We might actually, heaven forbid, suggest
lower amortization or something to augment that IO feature. As
Spencer said, we do receive some funky ‘asks’ every now and then
around reserves and things like that, but, again, we find creative
ways to underwrite that generally.
Clay Sublett.
Pricing is always
a pressure point.
That’s just a
given regardless
of who you are.
It’s difficult to
hold the line when
you’re hearing,
‘I’m getting
quotes that are 70% to 75% leverage on a non-stabilized asset,
on a non-recourse basis.’ I would say the biggest issue right now is
pushback on recourse.
Brian Furlong.
For us it is some of the same concerns already
mentioned and the long back-end open periods. We’re seeing
more of it and I think some of it was mispriced by CMBS investors.
CMBS Borrowers: Can’t Get No Satisfaction?
Stephanie Petosa. Borrower-satisfaction issues were empha-
sized during the first CMBS go around. Borrowers found CMBS
structures inflexible and voiced concerns over their ability to
approach servicers during the crisis. What are you hearing today
from borrowers as far as their appetite for CMBS as a funding
source. Is there borrower trepidation about getting into a CMBS
loan today?
Spencer Kagan.
CMBS can provide the best pricing for a borrower,
but oftentimes comes with less servicing flexibility. Borrowers need
to determine what’s most important to them. The lack of flexibility
A Lender Roundtable: Real Talk from Real Lenders on Today’s Competitive Commercial and Multifamily Lending Environments
“I’ve often said, it’s very difficult to
guard against the stupid lender
when you look at it from a 30,000-
foot level. Banks are probably doing
a reasonable amount of volume…
but if you’re getting everything
you’re quoting, you’re clearly too
aggressive.”
Clay Sublett