Then and now:

A great example of the ?pre? and ?post? Subprime loan pricing levels is our loan on a 75,000SF family-owned creampuff of an office building on East 57th Street in Manhattan. The $14M closed just before the Subprime story began to break. The 29% LTV loan was priced at 79 b/p above the 10-year Treasury for a 10-year fixed rate, interest-only loan resulting in a rate of 5.4%. Today the same conduit lender would still be willing to offer a 10-year fixed interest-only loan (given the superb location and the minimal LTV), but the spread would be 190 b/p above the 10-year Treasury, an increase of 111 b/p. Of course the increase in spread has been largely offset by the drop in the 10-year Treasury, so the rate the borrower would get is actually the same.

While there are fewer active lenders in the marketplace, money is still available to acquire and refinance cash-flowing apartment buildings, mixed-use, office and retail properties. All the local banks and thrifts that not long ago seemed so dowdy in comparison to the sleek and powerful Wall Street CMBS players are looking pretty good these days to anyone trying to get their deals financed. Multifamily is having an easier time of it these days than the other asset classes because Fannie Mae and Freddie Mac are still very much alive, well and lending at very reasonable spreads. All lenders are underwriting each loan more painstakingly looking for real debt service coverage, and, like the construction lenders, seeking more conservative leverage.

Strategic use of Private Lenders is an important tool in today?s environment:

In addition to our brokerage business, I manage W Financial, a 5-year-old private mortgage lender that makes bridge loans in the $2M - $25M range. As you may have guessed, W Financial has been very busy of late. With many Wall Street lenders sidelined, bridge loans are being utilized more than ever. Land is tougher to finance, therefore borrowers sometimes choose to close with private money for a few months while putting the finishing touches on their construction loan application. Especially now, with no time to lose before the expiration of 421A benefits, private money can be the key to jump starting a project and meeting rather than missing the 421A deadline. Although more expensive than bank loans (typically 12% or so), most borrowers use bridge loans for brief time frames to accomplish a strategic and frequently time-sensitive goal.

W Financial recently closed a $5M bridge loan for a vacant property on West 86th Street near Riverside Drive in Manhattan. The bridge loan will fund pre-development expenses while terms of a bank construction loan are being finalized and additional equity for the project is being sourced. The bridge loan will be refinanced upon the closing of the construction loan.

A few days ago W Financial provided $10.25M for a land acquisition and construction loan on a 62,000 buildable SF development site on a corner of Third Avenue in the teens in Manhattan. Given the upcoming 421A deadline the developer chose to close rapidly with a bridge loan rather than cut it too close by waiting to close a construction loan in May or early June. The bridge loan was priced at 12% with 2 points. The time frame from executed term sheet to closing was less than 2 weeks.

Clearly, even in the midst of the current market turmoil, construction and other commercial real estate financing is obtainable for worthwhile projects at very attractive rates. Now more than anytime in recent memory, it pays to be very well prepared with a clearly conceived plan of attack before approaching lenders.

© 2008. Gregg Winter. All Rights Reserved.
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