Finance Quarterly
Let the
Good Times
Roll . . .
For some borrowers,
the lending climate is
so good that it’s easy
to forget the world
almost came to an
end five years ago.
Others, though, are
still living in that
world. As always, it’s
a market-by-market
story.
By Erika Morphy
Melissa Pielet, executive vice president of finance for Chicago-based HSA Commercial, well remembers the time she walked out of a closing, paper- work left behind unsigned. After all, it wasn’t that long ago and, as happenstance would have it, Pielet was preparing to go to a closing with a new lender offering
better terms than the first one when Real Estate Forum caught up with her.
The original lender was a CMBS provider and the property was a multi-tenant industrial complex in the Midwest. At the closing, Pielet was taken aback by several clauses that
weren’t favorable to her client. For example, the lender claimed the right to sweep cash
should the building lose a tenant—even if the property was still cash flowing.
Pielet wasn’t happy—and she knew there were other options. So she walked. Within
weeks she was able to arrange financing with an Indiana-based bank. It is a 10-year term,
Pielet says, with very straightforward requirements.
“Just what do borrowers want these days?” one can almost hear Pielet’s abandoned
CMBS provider plaintively asking. Five years ago, the world was just about coming to an
end. Now the CMBS market has restarted, banks have opened their doors and balance
sheets again to the commercial real estate community and life companies are stepping
up their CRE allocations. What more could borrowers want?
As it happens, a lot more.
Let’s leave aside the usual wish list of high loan-to-value leverage, no recourse, low
interest rates and loose underwriting. Those are a given. One common desire by borrowers, found across markets and asset classes, is to see lenders continue their push to
blur product lines and in general be as flexible as possible. For some borrowers—
namely those in troubled markets—this wish translates into hoping for a lender that is
willing to underwrite a property that is 65% occupied instead of insisting on a by-the-books number of 70% occupancy.
For other borrowers in better-positioned markets, though, the sky is becoming the
limit. They want the basement-bottom rates of banks, the scale of CMBS and the competitive tension between the GSEs and life companies—all rolled into one Lady
Bountiful-like lender.
They are hardly there yet, but interestingly, five years out from the crash and Great
Recession, they are a lot closer than the market ever would have imagined.
