Fourth-quarter 2009 saw an improved lending environment. Each of the following had a positive effect in the market that should lead to more commercial lending in 2010:
CMBS securities prices continued to climb on existing senior investment-grade CMBS, reducing investor yields. Prices for older vintage (pre-2005) senior investment-grade CMBS are now at or near 100, with yields of about 5%. In turn, CMBS origination shops are gearing to restart programs, offering 7% rates to borrowers, providing an attractive potential profit margin.
The U.S. government extended the 90% guaranty on SBA 7(a) loans and waiver of guaranty fees until February 28, 2010. A jobs bill is moving its way through the U.S. Senate that will extend the 90% guaranty on SBA 7(a) loans and waiver of guaranty fees until yearend 2010.
The FHA 223(f) program is filling a gap left by conduit lenders. The program’s generous terms of 85% LTV and 1.18x debt-service coverage are providing more proceeds than any other multifamily loan program. Current rates of 5.25% including the ongoing guaranty fee are very attractive.
Three new issues of CMBS securities were issued in the fourth quarter of 2009 and the bonds were snapped up by investors. These transactions will have a positive impact on single- and multiple-property CMBS transactions in 2010.
The SBA 7(a) program is helping small limited-service hotel owners refinance their maturing CMBS conduit loans as very few sources of hotel financing are available for this asset class, which took it on the chin during the current recession.
“The fourth quarter of 2009 saw a lot of positives for commercial lending. I think 2010 will be a recovery year, with growth in commercial lending occurring in 2011,” commented Michael Sneden, Executive Vice President at ValueXpress. “What is holding the recovery back is weak levels of capital in the community and regional banks, which are spending more time on problem loans that making new loans, and the relentless rise in commercial loan delinquencies. If delinquencies can peak in 2010, growth in lending will occur sooner rather than later,” Sneden believes.