Finance Quarterly
Even taking into consideration their previous history with each other, a $50-million
credit facility on the part of KeyBank Real Estate Capital for Sunrise Senior Living would
seem unlikely in this current environment.
Sunrise Senior Living has had its difficulties, illustrated most recently by its recent earnings
report in which it stated net income for the second quarter of 2011 of $1.3 million, compared
to $46.3 million for Q2 of 2010. It also reported that the sequential occupancy rate of its real
estate holdings dropped by 50 basis points from first quarter 2011 to the second quarter.
As for KeyBank, it has gone through a period of retrenchment after the crash, reemerging
as a smaller, more focused and, some would say, even more conservative lender. Yet it decided
to go forward with the senior secured credit facility, which Sunrise will be using for working
capital and general corporate purposes, for some very practical and far-sighted reasons. It is
also bringing to the table its treasury management operations and other potential business.
Not that KeyBank ignored possible warnings of trouble at Sunrise. “Even though there
was a lot of noise and issues swirling around Sunrise, it became clear to KeyBank that its
management team was focused on divesting itself of its problem assets in an aggressive
manner and timetable,” says Henry Alonso, a Cleveland, OH-based senior vice president of
KeyBank Real Estate Capital Healthcare Group. “All together, the business will translate
into capital markets opportunities, such as capital raises and agency opportunities. It is not
just a balance sheet transaction for us.”
THIS NEXT, STRANGE STAGE
KeyBank, of course, has always been a relationship lender. This deal, though, is illustrative
of just how nuanced and carefully weighed each transaction must be—for all financial players, not just banks—in this next, latest stage of the capital markets recovery for real estate.
This is a stage where post-Standard & Poor’s downgrades of US debt, the equity markets
promise to erupt in turmoil at a moment’s notice, prompting companies eying public
offerings to shelve plans and businesses to hold back in general from expansion. The GSEs
are, according to pundits in Washington, on the brink of being remade entirely; in the
meantime, they are promising to increase their multifamily production pipeline for 2012.
It’s a stage where finance providers in all categories—from life to CMBS—are finding it
easier to partner and syndicate than to bear the risk alone, a stage where Goldman Sachs
Group and Citigroup were forced to pull a $1.5-billion commercial mortgage-backed security from the market in July after S&P backed away from rating it, only to return triumphantly to market in September with more conservatively structured security of $1.7 billion, rated by Morningstar, Fitch Ratings and Moody’s Investors Service. At the same time,
no one is quite clear what is happening with the CMBS markets.
This latter point is perhaps most key of all: what happens, or doesn’t, in the CMBS markets is going to touch upon every transaction, even those seemingly unrelated.
KeyBank, for example, doesn’t rely on the securitization markets to offload its loans, but
it does syndicate with banks that may. When asked about KeyBank’s allocation to commercial real estate loans, Alonso replies that it depends on whether a transaction can be syndicated. “We have tremendous syndication capabilities and through that we are prepared to
entertain some pretty large numbers,” he says.
REBOOTING CMBS
The CMBS market began 2011 with high hopes. Projections called for the year to finish
anywhere between $40 billion and $75 billion in originations, with the potential addition
of more B-piece buyers to the mix. It seemed possible: 2010 saw a good 20 or so CMBS
shops open their doors again. Indeed, even this summer and into September, companies
continued to enter the space.
It was reported that Barclays Capital is partnering with investment manager FundCore
Finance Group to jointly finance loans in a partnership to expand Barclays’ CMBS platform. Clopton Capital, based in Chicago, announced it was broadening its CMBS busi-
