Nebo attended the MBA Conference this year and the prevailing message was that the capital markets are back in full force! Here's a brief summary:
Private Opportunity Fund/Non-Hard Money Lenders:
Most of the private portfolio lenders are pricing between 6.25% and 7.50%, nonrecourse, 1% loan fee with some call protection, typically at least 12 months. Most are $10M minimum, dipping below that for clean transactions with one lender going as low as $1M for a premium yield, but still in single digits. Most will also fund mezzanine or preferred equity and we heard as high as 100% of the discounted payoff amount if the value is there for the right asset, but for a premium. A few have closed condo inventory loans recently and one of these groups funded preferred equity without a recognition agreement behind a low leverage conduit loan. In total, these groups funded in excess of $1B in 2010.
We met with four banks, two of the banks had programmatic nonrecourse portfolio lending for existing assets, the other two are funding construction loans. The first nonrecourse lender will fund up to 80% LTV for multifamily up to seven years fixed with a 15 year term from $1M to $20M at 5.50% to 6.50% floor, but for commercial a minimum $10M and limited to 75% LTV. The other bank closing nonrecourse loans is seeking a range of $25M to $300M and will not lose a deal they really like on pricing. The first recourse lender will price at 250 over LIBOR with no floor (yes, below 3%) and allow a swap up to 10 years with an earnout feature on value add transactions up to a 10% debt yield at stabilization (NOI divided by loan amount), which can be a fixed rate, or revolving credit facility.
With a few billion dollars under their belts, all of the conduit lenders had multi-billion dollar goals for 2011, with one forecasting as high as $10B in the next 12 to 18 months. One group is doing internal mezz to a 1.10 DCR coterminous with the first, 1% fee, 12% to 15% interest, pre-payable at par at any time. One group is buying the non-investment-grade tranches of the securitization, increasing the certainty of execution. Pricing today is between 6.0% and 6.50% fixed for 10 years with spreads ranging from 220 bps to 270 bps over 10 year swaps.
Life Insurance/Pension Fund Lenders:
We met with four lenders in this group, the first lender in this group will go down to $7,000,000, up to $100,000,000, priced 160- 225 bps over the treasury (10 years fixed from 5.25-5.90%), 60% to 70% LTV, typical 60 day close (as fast as 35 days) 25-30 year amortization. The second lender in this group will fund nonrecourse construction loans requiring union labor ranging from $10,000,000-$30,000,000, 7% to 7.50% rate, 65 to 70% LTC for apartments, 60-65% for commercial, sized to a 1.20 or 1.25 DCR on a 7.50% loan constant (equivalent to a 6.40% rate and 30 year amortization). The third lender will fund as small as $5,000,000, as short as three years and a fourth pension fund is looking for very large transactions with some appetite for forward commitments.
While approximately half of the lenders above will do mezzanine and/or equity, three of the groups we met are strictly focused on this capital. The first is a preferred equity structure where they will fund 80% of the required equity, charge a 10% preferred rate of return with a 30% promote. The partner gets its money back first, then the sponsor, the partner gets its preferred first, then the sponsor, then 50/50. The second source of mezzanine/equity financing has recently funded preferred equity without a recognition agreement from the CMBS lender, is seeking returns from 11% to 13%, up to 85% LTC, 80% LTV with a minimum 1.10 DCR, coterminous with the first mortgage, interest only, minimum 18 months yield maintenance, cash out allowed and will fund 100% of a DPO. The third lender is doing low-cost mezzanine on cash flowing assets and will do joint venture equity on vacant buildings with an overall fund targeted IRR of 18%, but sizing is usually 13% to 15%. The partner requires a 10% coinvestment, 8% preferred return with a two or three tiered waterfall ending at a 50/50 split after the JV partner achieves an 18-20% IRR. In addition to funding several vacant office and industrial buildings, they have also funded all types of residential lots. -