Scotsman Guide - April 2009 Commercial Edition

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SAW IT By Darrick Meneken

2009 Mortgage Bankers Association CREF/Multifamily Housing Convention and Expo

Things will get worse before they get better.

That was the sentiment this past Feb. 8-11 in San Diego, where more than 2,000 commercial-mortgage-industry professionals gathered for the annual Mortgage Bankers association (MBa) Commercial real estate Finance (CreF)/ Multifamily Housing Convention and expo.

“We are in a seized-up marketplace,” said John a. Courson, MBa’s president and chief executive officer, on Feb. 9. “if we don’t change some of the basic tenets built into our business, then i don’t know if we get a second chance.”

Conference attendees discussed possible solutions, market trends and when the recession might end — among many other topics — during a series of breakout sessions.

Here’s a synopsis of five CreF sessions most relevant to commercial mortgage brokers.

Political Landscape: Legislative and Regulatory Challenges

■■ Who: richard Jones, partner, Dechert LLP ■■ When: 10: 45 a.m. to noon, Feb. 9

^(moderator); ^Keith ^Dunsmore, ^partner, ■■ What: This session, held eight days before Powell Goldstein LLP; Stephen O’Connor,

President Obama presented his federal eco-
senior vice president of government affairs,
nomic-stimulus package, focused on legisla-
Mortgage Bankers association; Kieran P.
tive efforts to reinvigorate credit markets.
Quinn, vice chairman, Walker & Dunlop “The key is to get some kind of bill out
inc.; Catherine Cruz Wojtasik, associate there to get the economy going again,”
vice president of legislative affairs, Mort- O’Connor said. “There is a quiet sense of
gage Bankers association desperation.”

in many cases, that desperation traces back to depreciating mortgage-backed securities eating away at lenders’ available capital. Government efforts to remove some of these assets from lenders’ balance sheets still were subject to debate following the CreF convention.

“You have two worlds colliding — the

Washington world and the Wall Street world,” said O’Connor, adding that the trick is to get institutions to restart lending without putting them at risk of failure.

Capital Markets: The Evolving Market Model

Loan Origination: The Current Marketplace

Location, Location, Location

Valuations, Trends and the Underwriting Model

■■ Who: Kieran P. Quinn, vice chairman, Walker & Dunlop inc. ( moderator); Tim Bitsberger, former assistant secretary for financial markets, U.S. Department of Treasury, and former senior vice president and treasurer, Freddie Mac; Warren Friend, managing director, Deutsche Bank; richard Jones, partner, Dechert LLP; James Palmisano, managing director, Standard & Poor’s; Paul vanderslice, managing director, Citigroup Global Markets inc.

■■ When: 2 to 3: 15 p.m., Feb. 9

■■ What: Will securitization return? That question framed this panel discussion, and it raised two additional questions:

1. Who’s left to buy securities?

2. Who’s left to originate loans?
“The market will start to function
again when these types of things are
rectified,” Bitsberger said.
anyone who attempts to revise loan
conditions must be extremely diligent
when dealing with servicers, accord-
ing to panelists. The key is to be hon-
est and to deliver complete packages.
Brokers who foresee borrowers’ work-
out needs and get a jumpstart on the
process can position themselves for
success.

if and when securitization does return, the panel noted, it likely will be in a different form and with more transparency.

To view selected presentations from
the 2009 MBA CREF/Multifamily
Housing Convention and Expo, visit
mortgagebankers.org/
CREFMultifamilyHousing
ConventionandExpo.htm

■■ Who: Mark Wilsmann, managing director, MetLife inc. (moderator); Martin Lanigan, CeO, emerald Capital Finance; Timothy McGinnis, managing director, real estate group, New York Life investments; Daniel Smith, managing director, rBC Capital Markets; Clay Sublett, national production manager, KeyBank real estate Capital; James J. Mazzarelli, managing director, Transwestern realty Finance Partners LLC

■■ When: 3: 45 to 5 p.m., Feb. 9

■■ What: Now is the time that all cash players “get to name their terms,” Sublett said.

That’s great news for those sitting on a mound of cash, but what about everyone else looking to invest in commercial real estate this year?

“Never has the intermediary served a more important role,” Sublett said. “[Borrowers] are going to be saying, ‘Get me a loan, any loan.’”

For brokers, coming through on that request won’t be easy. Those who work with good properties in good locations — and backed by solid sponsors — will have a head start, according to McGinnis. He added that he thinks smaller, regional banks will continue to represent a good funding option.

Lanigan said he agreed but added that these banks are a Band-aid, not a permanent solution.

Mazzarelli also urged a focus on cash flow. That can remove some of the burden from value, he said, noting that simpler deals — think one senior debt-holder, one junior debt-holder and borrower equity — are desirable.

■■ Who: Brian Stoffers, president, CBre Capital Markets (moderator); Michael B. Cohen, research strategist, Property & Portfolio research inc.; Jamie Woodwell, vice president-commercial/ multifamily research, Mortgage Bankers association

■■ When: 10: 45 a.m. to noon, Feb. 10

■■ What: Cohen’s statistics-packed report about the apartment market highlighted this breakout session. His predictions included the following:

■

Overall U.S. apartment vacancy rates will peak at more than 8 percent in 2010.

■

Demand for apartments will bounce back between 2011 and 2013.

■

By the end of 2010, apartments will have experienced the greatest value declines among the top-four property types — apartment, office, retail and industrial — during the previous four years.

■

Apartment capitalization rates will stabilize around 7 percent in 2010.

Brokers should understand the job base and market fundamentals of any area in which they intend to work, Cohen advised.

He also looked at the retail segment, noting that the 54 primary U.S. markets all show contraction this year.

“all in all, it’s a very painful story for retail,” he said.

Despite that, retail vacancy rates won’t reach historic highs, said Cohen, adding that the same likely isn’t true for multifamily, office and industrial markets.

■■ Who: Young Hong, president, Strategic Property associates/Strategic asset Services (moderator); William Hughes, senior vice president and managing director, Marcus & Millichap Capital Corp.; Thomas Kosonen, managing director, Bear Stearns and Co. inc.; Chris Kane, head of securitization and loan closing, Bank of america/Merrill Lynch Canada

■■ When: 2 to 3: 15 p.m., Feb. 10

■■ What: These panelists’ message was clear — appraisals alone won’t deliver adequate value estimates in today’s market. Yes, lenders are looking at cash flow, too. But another trend is emerging.

as Hughes pointed out, lenders want to know everything possible about borrowers’ worth and investment portfolios. Brokers who make a strong case for their borrowers’ stability and motives stand a better chance of closing loans.

To make an even-stronger case, brokers should provide official proof of everything, panelists said.

“it’s really [about] measuring down to the nuts and bolts of the borrower and the transaction,” said Hughes, noting that 60-percent to 65-percent loan-to-value ratios are considered aggressive in a deleveraged market.

“[Lenders] want to drill down to a warm body,” Young said. “[Borrowers] better get used to making disclosures. if they don’t like that, they don’t get the money.”