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News release

ATLANTA, GA

Commercial Real Estate Lenders Ready to Shell out Bigger Dollars in 2012

Jones Lang LaSalle lender expectation survey reveals a 12 percent increase in lending this year


ATLANTA, Feb. 16, 2012 — A wide swath of lenders attending last week’s Mortgage Bankers Association conference in Atlanta were singing the same tune and it rang with strong notes of aggressive capital coming back into commercial real estate in 2012 in much greater volumes across lending sources. One-hundred percent of the 20 institutional lenders with whom Jones Lang LaSalle held private meetings indicated a stronger appetite or allocation for placing commercial real estate mortgages in 2012. Along with direct lender input secured at the event, Jones Lang LaSalle also partnered with Penton Media Research on a proprietary survey that compiled feedback from 186 borrowers and 136 lenders that together comprise a total median $73.3 million in commercial real estate asset value.  In the survey, lenders reported positive expectations for 2012 funding aims including a 12 percent uptick in expected capital placement this year.

2012 Lender Expectations Highlights
  • Financing in 2011 increased an average 11 percent from 2010. Respondents expect 2012 financing availability to increase 12 percent over 2011.
  • Apartments represent the best investment opportunities today as 76 percent chose the product type.  Another 48 percent of lenders worry the most about hotel loans. 
  • Lenders indicated that 62 percent of loans closed are for long-term and 38 percent are for short-term loans. Those percentages aren’t expected to move much with 2012 long-term expectations at 64 percent and short-term at 36 percent. 
  • Outlook for finance markets is broadly optimistic as 56 percent of lenders and 44 percent of borrowers expect credit to be more available in the next 12 months.

“We expected to hear bold predictions from all of the lending sources along the capital stack and they didn’t disappoint with strong inclinations to place commercial real estate debt,” said Tom Fish, Co-Head and Executive Managing Director of Jones Lang LaSalle’s real estate investment banking business. “We were pleasantly surprised with lenders’ acceptance of risk as more indicated they had cash flow for the secondary markets and property types, indicative of lenders moving up the risk curve.”

More capital flowing into real estate
“While absolute borrowing rates are at historic lows, lenders view commercial real estate mortgages as attractive
investment opportunities versus alternative bonds or other fixed-rate alternatives. That should result in larger allocations to commercial real estate this year from life companies, commercial banks and CMBS originators,” added Mike Melody, Co-Head and Executive Managing Director of Jones Lang LaSalle’s real estate investment banking business. The lenders Jones Lang LaSalle surveyed agreed, indicating an increasing trend that has been on the move the past two years. Lender financing in 2011 increased an average 11 percent over 2010. Lender respondents expect 2012 financing to increase even more with a 12 percent improvement over 2011.

Take, for example, Marty Cropp, senior managing director of Principal Real Estate Investors, who seeks to meet Principal’s rising production goals, which are up 25 percent to $3 billion in 2012. http://youtu.be/sCLfmIhij0E  

The life companies aren’t showing any slowing down either. A.G. Seifert, Managing Director, Cornerstone Real Estate Advisors, describes how Cornerstone is looking to be extremely competitive once again in 2012. http://youtu.be/wnfCv_MHlPA

The conduits also boldly represented their lending aims for CMBS issuance in 2012. Following a volatile 2011, CMBS originators are back in the market in a big way in 2012, as volumes are expected to rise as high as $50 billion this year. 
Co-Head and Executive Managing Director of Jones Lang LaSalle’s real estate investment banking business Tom Melody expects debt financing to remain very strong in the core space from commercial banks, life companies and CMBS.

“Each of the main capital sectors were bullish on 2012 capacity and it seems life company volumes could be up 10 to 20 percent in 2012 and CMBS issuance could rise by 50 to 100 percent over 2011 this year,” added Tom Melody. http://youtu.be/2kZLvMnxHgk

Even though there is a greater amount of capital heading into the market, the types of financing lenders plan to provide with these dollars isn’t shifting. Lenders indicated that 62 percent of loans closed are for long-term and 38 percent are for short-term loans. Those percentages aren’t expected to move much with 2012 long-term expectations at 64 percent and short-term at 36 percent.

Best Investment Opportunities
A full 76 percent of the lenders who participated in Jones Lang LaSalle’s survey indicated they favor apartments as the best investment opportunity, followed by medical office at 33 percent and office-suburban space at 38 percent. Of the property types, hotels (48 percent), undeveloped land (33 percent) and unanchored retail properties (34 percent) pose the most concern to lenders reviewing loan applications.

Jones Lang LaSalle’s Managing Director Kelly Gaines sees a
much bigger expanse in lender distributions as competition is stiff for lenders to lend to multifamily and they’re branching out further to office and true grocery-anchored retail centers. Gaines sees lenders moving up the risk scale to get the yield they need in 2012. http://youtu.be/3aYtGcjDTHo
 
Promising outlook
The mood at MBA was optimistic as lenders and borrowers alike boast high expectations for the year ahead. Of those surveyed, the positive sentiment prevails as 56 percent of lenders and 44 percent of borrowers expect credit to be more available in the next 12 months.

On a cautionary note, it’s clear that economic conditions are what are keeping lenders up at night as the majority of survey respondents rate the health of the U.S. economy, the state of the housing market and the creditworthiness of tenants as the strongest factors that produce a negative impact on the volume of the commercial lending business.

Jones Lang LaSalle Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2010 alone, Jones Lang LaSalle Capital Markets completed $43 billion in investment sale and debt and equity transactions globally. The firm’s dealmakers completed $33 billion in global investment sales and buy-side transactions, equating to nearly $140 million of investment trades completed every working day around the globe. In the United States, Jones Lang LaSalle grew its office broker volumes by 257 percent in 2010 and is quickly gaining market share across all property types. The firm’s Capital Markets team comprises approximately 800 specialists, operating in 185 major markets worldwide.

About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2010 global revenue of more than $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 185 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.8 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with more than $47.7 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com.