Real Estate Forum - April 2009

can be downright onerous, with LTVs close to 80% and interest rates topping 10%, in some cases. But for property owners that want to restructure, such funds provide a good stopgap, he says.

Then there are the foreign investors, who are expected to step up their allocations in US real estate this year. A recent survey by the

Washington, DC-based Association of Foreign Investors in Real Estate found that foreign-based investors plan to increase lending by 54% globally and 58% in the US. Equity investors anticipate an increase in investment activity by 40% globally and 73% in the US.

There are already some signs that foreign investors are following through. In

Washington, DC—the city rated most likely to be the recipient of such funds—JBG Cos. recently secured $100.5 million in three-year financing for 1101 K St., a 310,825-square-foot office building. The German bank Helaba replaced Bank of America’s construction loan with adjustable rate financing.

Life insurance capital is also available, but at unknown allocation levels. Indeed, identifying which insurers are still active in the market has become a favorite guessing game for the industry. Clearly, many have scaled back, but the major providers are still lending, Steve Sakwa, a Banc of America Securities-Merrill Lynch Research Analyst, says. However, many have been very coy about stating their intentions. “They have not come out and said they are or are not going to lend,”

he says.

Much of the capital available will go to refinance new loans, Sakwa says, which limits funding for new projects. But, he says, “Insurance companies and banks don’t want to take back performing properties just because the new LTVs and property

“Banks don’t want to take back a performing
property just because the new LTVs and
property valuations have
put it under water.
”

valuations have put an asset under water.”

So life insurance companies are changing terms or requiring borrowers to pay more debt. Indeed, most borrowers can expect continuing support from their life financier. The only question is whether they will have to put in more money or whether they will receive proceeds at all. Not that such solutions are painless for borrowers. In many cases, Sakwa says, a borrower may have been planning to place expected proceeds elsewhere, including on debt that may be coming due for another project. But in this market, any financial solution—including the government’s PPIP—will be equal parts pain and relief. ◆

Reprint orders: www.remreprints.com

Thurs., June 11, 2009 at 12: 30 PM (ET)

Finding opportunities in the apartment and condo markets nationwide despite the unstable economy and housing market.

Conference Topics:
• The impact of the housing crisis and the recession have had and when--and how--multifamily
market recovery will arrive.
• Debt & equity capital markets update: Who is filling the credit void and what is the cost of equity
in today’s environment?
• Buy, sell or hold: Is it safe to jump back into today’s investment market?
• How to play and win in the competitive value-add and redevelopment markets.
• Making development deals work amid an equity-starved, high land cost, prolonged entitlement
environment.
• Opportunities in niche product types: student housing and seniors’ housing.
• Capitalizing on distressed multifamily assets.