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CRE Finance World, Winter 2012

Roundtable: Outlook 2012 Brian P. Lancaster: positive we might see in the midst of all of this is that the rate of And referring to Europe, with turmoil still roiling markets worldwide, transfers into the specially service category has moderated con- siderably over where it was a year ago. Fortunately, concurrent with policymakers have committed to a relatively low interest rate environment for the near term. Ben Bernanke has committed to that, resolutions have also picked up for the last few months where our resolutions have exceeded our intake of new specialty service keep short-term rates low through 2013. How will that impact cap rates in 2012? Where do you think cap rates are going? loans. I think there are pockets and signs of growth in certain areas and optimism in certain areas. Certainly, the large numbers of Concerns have been raised this a mini-repeat of what we went through before the crash with low interest rates and investors upcoming maturities pose great challenges, but I think that all of us in the special servicing industry have had to develop, over the last reach for returns driving real estate valuations and not NOI growth. couple of years, more effective means of dealing with troubled assets Victor Calanog: in order to deal with the high volume as efficiently as possible. Thanks for asking that, Brian, because I’ll freely admit that as we Brian P. Lancaster: ended 2010 I was more concerned about how cap rates would move in a higher interest rate environment. The world certainly You mentioned the pickup of resolutions has exceeded the new changed since then, and with interest rates remaining relatively intake. Do you expect that to continue in 2012, or do you think low I expect cap rates to remain at a relatively low level as well. that could reverse? CMBS delinquencies have been slowing Interestingly, the turmoil in non-US markets may turn out to be a down. Do you think that will continue or do you think we will boon for US commercial properties, if investors chasing yields still see a resurgence of delinquent loans coming in? What do you perceive buildings around the US to offer an acceptable risk return believe will be the biggest challenge facing the CRE industry and profile. Sovereign wealth funds in Asia are looking out for yields Special Servicers in particular in 2012? above the usual sub-2% they’re getting, and with the risk for sovereign debt itself perceived as rising (so much for the risk-free Thomas F. Nealon III: rate), investing in property in some form might be perceived as A major driver for 2012 is the high volume of maturities. Trying the way to go. We’re seeing decent numbers from UK RMBS, for to look into the future, I don’t know if any of us can predict very example, where deals are being made despite the general feeling accurately the level of CMBS delinquencies, given the constraints of gloom in the region. in the credit markets. The current projections of CMBS lending next year would not satisfy the high volume of maturities that are So in a nutshell, we have decent but not fabulous numbers for anticipated, so that is really going to be a major challenge for all fundamentals — except for multifamily, which is the belle of the ball Special Servicers. That being said, I do think that Special Servicers — and transaction markets could benefit from greater availability have become more adept at pursuing, what we used to describe as of financing. That’s why I should stop talking, and turn it over to the dual-tracking a work out — talking to the borrowers and proceeding other folks in the panel, because I’m very interested in their outlook with foreclosure or enforcing whatever rights you had under the for 2012. loan documents. Those are both still being pursued, but loan sales and REO sales have picked up, particularly those utilizing Brian P. Lancaster: the auction system. Thank you, Victor. Tom, from the perspective of a servicer, are Given the large amount of capital that is out, we have been pleasantly any of the improvements or changes in the commercial real estate property markets impacting CMBS loan losses, severities surprised by the interest in troubled loans without really a significant discount off of what you might expect to recover from an auction or the speed of liquidations? of the property itself. Obviously, in the case of loan you are not Thomas F. Nealon III: immediately getting to title to the property. You have to deal with the borrower and whatever the legal system is in that particular Thanks, Brian, Thank you for inviting me. It’s a pleasure to participate. jurisdiction. But, I think the utilization of all those different options, As we look at the word “improvements” or “changes”, I guess it is as well as the continued experience that special servicers have all relative. From our vantage point, we are currently looking at a had over the past few years dealing with the increasing volume has portfolio of over 1,100 specially serviced loans and almost 300 made them more adept at selecting what is the right execution for REO properties that we are currently managing. Those volumes resolution on an asset by asset basis. obviously dwarf what we had not many years ago. I guess the one CRE Finance World Winter 2012 8


CRE Finance World, Winter 2012
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