Lenders have plenty of cheap money burning holes their pockets, so the commercial real estate loan market is coming back. Because many properties are underwater, the competition to lend on those that aren’t is keen. The New York Times, Julie Satow reports,
This means that banks, insurance companies, hedge funds and others are competing fiercely to underwrite the few viable loans that are available. Because of the competition, some lenders have begun to compromise their underwriting standards, say ratings agencies and market professionals.
The market for commercial mortgage backed securities peaked in 2007 at $243 billion. Two years later, the market was only $2.4 billion. Now lenders are ramping up with just short of $17 billion issued this year. Interest-only deals have returned and “[s]ome of the assets are also less stable, with lenders underwriting deals for mobile home parks and self-storage units,” explains Satow. “Increasingly, appraisers are taking into consideration higher future rents and occupancy rates, rather than using only current figures.”
Barbara Duka, a managing director at Standard & Poor’s, says “what has surprised us is the speed at which the metrics have gone from very conservative to much less so.”
At the same time, the latest results of the Moodys/REAL CPPI show a price change return of negative 3.69% in April for the all properties national index.