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News release

Las Vegas

Jones Lang LaSalle Examines Lenders’ Production Expectations in Annual Survey at MBA Conference

Loan production between $2 and 4 billion expected to double from previous year in 2010


LAS VEGAS, FEB. 4, 2010 — The tide appears to have turned for commercial real estate lending as an increasing number of lenders predict loan production will increase this year, according to findings from Jones Lang LaSalle’s annual 2010 Lenders’ Production Expectations Survey.  Forty-three percent of respondents expect their loan production to range from $2 to $4 billion in 2010—a number that is more than double the rate that lenders surveyed reported sourcing in 2009 (at 21 percent.) Showing even more future optimism, nearly 70 percent of respondents say their loan production will ramp up to $2 to 4 billion in 2011. In another encouraging metric, the number of lenders that expect to lend more than $4 billion jumped up 6 percent from 9.3 percent in 2009 to 15.2 percent in 2010.
 
Jones Lang LaSalle’s survey—administered directly to 60 nationwide lenders through a face to face questionnaire—included a mix of insurance companies, commercial mortgage-backed securities dealers, private equity lenders, commercial banks and government agencies. It was conducted over several days during this week’s Mortgage Bankers Association’s Commercial Real Estate Finance/Multifamily Housing Convention and Expo in Las Vegas, Nevada.
 
“Lenders we spoke with say they’ll be giving borrowers 24+ month extensions in order to avoid foreclosure on high quality, well-located assets,” said Bart Steinfeld, Jones Lang LaSalle’s Managing Director of the real estate investment banking practice.  “With more than $1 trillion worth of commercial real estate loans expected to mature between now and 2013, it’s no surprise that a majority of borrowers are placing significant importance on restructuring those loans.  However, many financial institutions don’t want to hold on to assets and now are coming to terms with the fact that they can no longer ‘extend and pretend’. They’re now realizing it makes good sense to move these assets off their balance sheets to create greater ability to originate loans this year.”
 
The number of lenders willing to lend greater sums toward single-asset acquisitions is also shifting. In 2009, the majority of respondents indicated they would lend only $10 to 25 million on a single asset acquisition. In 2010, the greatest percentage of respondents was split evenly at 28 percent each among those willing to lend $50 to $100 million and $100+ million (hence 56 percent will lend $50 million and more for single-asset purchases). In 2011, the number of lenders willing to lend $50 to 100+ million rises by 8 percent to 64 percent of respondents.
 
Approaching maturities will continue to share the stage in 2010, with more than 67 percent of life company respondents acknowledging 40 to 60 percent of their portfolios will be allocated to the refinancing of maturing loans. 
 
While liquidity within the capital markets is expected to turn from a trickle to a slow-but-steady flow in 2010, borrowers can expect the same tightened underwriting standards they experienced from life company lenders in 2009.  Loan to value ratios in 2010 will fall predominantly in the 50 to 70 percent range, according to more than 74 percent of life company respondents, and that number is expected to remain steady in 2011.
 
As for new conventional commercial real estate loans in 2010, 59 percent say most loan terms will range five years or greater, with an additional 28 percent indicating a preference for three to five year terms.
 
When asked about average debt coverage ratios or debt yields they are quoting, industry participants expressed a wide range of opinions. A representative sample reveals the following offerings for each lending sector (not every respondent actively lends to each industry sector, thus responses vary):
  • Life companies:  One respondent advised that debt coverage ratios would range from 2.25 for hotels, 1.30 for multifamily, 1.40 for office, 1.60 for retail, 1.50 for industrial.
  • CMBS: One respondent advised debt coverage ratios will range from 1.35 for hotel, 1.25 for office, 1.20-1.25 for retail, and 1.20 to 1.25 for industrial.
  • Banks: One respondent advised debt coverage ratios will range from 1.35 for multifamily, 1.50 for office, 1.50 for retail, and 1.50 for mixed-use.
  • Private Equity:  One respondent advised debt coverage ratios will range from 1.15 for multifamily, 1.20 for office, 1.20 for retail, 1.30 for industrial and 1.30 for mixed-use. They’re also underwriting debt yields across the sector between 10 and 12 percent.
 
As for the sectors that lenders would most prefer to lend, a majority of respondents (27 percent) say they’ll single out multifamily for their loan dollars, while another 21 percent say they’ll focus on the office sector in 2010.  While the hotel sector stands out as the sector to which lenders are least likely to lend, a select number of lenders indicated an interest in hotel investments given their belief that the sector is at bottom.  The numbers don’t appear to change much for 2011, as 25 percent of respondents say they plan to reserve a majority of their lending dollars for the multifamily sector, with 21 percent putting their money into the office sector.
 
A number of lenders have indicated an interest in bridge loans for speculative development projects while yields are still high and spreads are compressing on the best projects.  Thirty percent of respondents say they have already begun or plan to begin lending on speculative projects in 2010. Although the greatest percentage, 23 percent, stated the risk won’t be worth the reward until year-end 2012.  One life company and one commercial bank respondent noted that each would never lend on speculative developments again.
 
A modicum of securitized lending has returned to the market with the issuance of nearly $1 billion in Commercial Mortgage-Backed Securities (CMBS) in 2009. While 2009 issuance was limited to single-borrower deals, the extreme over-subscription has led to an interest in multiple borrower pools. Forty-eight percent of respondents say they expect CMBS issuance to range from $0 to $10 billion in 2010, while 27 percent predict production of $10 to $20 billion and an additional 21 percent with $20 to $30 billion expectations. In 2011, the greatest number of respondents (38 percent) expect CMBS issuance to land between $20 to $30 billion.
 
There is a significant increase in the number of lenders who are selling performing and non-performing loans. In addition, these lenders are prepared to accept significant discounts in 2010 to create liquidity and to rid themselves of these non-core or problem assets.  For performing loans, 29 percent of respondents indicated they are selling performing notes at 0.90 cents on the dollar and another 24 percent are selling performing loans between 0.70 cents and 0.80 cents on the dollar.
 
“There is also increased interest in selling sub-performing, or “scratch and dent” loans,” said Noble Carpenter, managing director of Jones Lang LaSalle’s real estate investment banking practice. “Depending on the remaining term, interest rate, property type and market, over 45 percent of survey respondents indicated a willingness to sell these loans below 0.60 cents on the dollar.
 
Many lenders have started or are considering asset, REO and loan sales.  “We’re definitely seeing the bid ask spread between buyer and seller narrow, and in many cases reach equilibrium. That alignment should be the impetus many lenders need to bring large and small balance loans and REO to market,” added Wes Boatwright, managing director of Jones Lang LaSalle’s real estate investment banking team.   “One innovative distribution method financial institutions are now seriously considering and using to sell small balance notes and REO is an online auction. Our auction platform provides sellers with efficiency, transparency and pricing discovery which will help facilitate an increasing number of sales given financial institutions have limited time and human resources to work them out themselves.”
 
Jones Lang LaSalle Capital Markets is composed of a broad range of real estate investment debt and equity specialists, and corporate finance experts, working on all property types and in all the major national markets on behalf of major institutional and local investors and developers, as well as corporations.  The firm's Capital Markets professionals are highly skilled at pinpointing and tailoring the right capital solutions for each of these client's needs.   The Investment Sales teams assist investors in developing and executing asset recapitalization strategies for office, industrial, retail, multifamily, healthcare and seniors housing product. The firm’s Real Estate Investment Banking experts raise debt and joint venture equity for investors and developers, and provide derivatives structuring and loan sale advisory services.  The Corporate Capital Markets professionals help corporations develop and execute strategies that bridge their occupancy, capital deployment and financial reporting objectives for their facility portfolios.  The Development and Asset Strategy team specializes in the sale of non-income-producing properties in their various forms from vacant buildings to raw land to entitled parcels and partially completed subdivisions.  The firm's Value Recovery Services assist clients affected by the current financial crisis by creating value while managing risks through evaluating operational and occupancy needs, assisting with challenged assets and liabilities on their balance sheets, providing receivership services, asset management, raising capital through sales-leasebacks and providing leasing and recapitalization strategies for distressed assets. In the past two years, the firm’s Capital Markets team handled $117 billion of transaction volume.
 
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 2009 global revenue of $2.5 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.4 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 $40 billion of assets under management. For further information, please visit our Web site, www.joneslanglasalle.com.