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CRE Finance World, Winter 2012

Roundtable: Outlook 2012 Brian P. Lancaster: some form of modification and/or extension; whereas, in the case E.J., question for you. Given what most people are thinking for of smaller loans, there are probably alternatives in the way of refi- nancing at some lesser leverage number that presumably everyone 2012 CMBS issuance as well as Tom’s comments, it sounds like it’s going to be challenging to try to refinance the commercial can get comfortable with. But I think again, it’s ultimately going to be a matter of determining what the credit markets are offering in real estate loans coming due. Do you think banks can play a role there? Traditionally, banks have been lending floating rate. 2012, and what type of challenges a particular property poses in terms of refinancing. Is there any possibility for banks to participate? Do you anticipate any reduction in the volume of loans transferring to special Brian P. Lancaster: servicing in 2012? So, let’s assume that CMBS issuance is at $25 billion. Do you E.J. Burke: see the loans coming due in 2012? As some form of crisis, or do I think there is possibility for banks to participate, but there is a we muddle through in the sense that the trust is becoming the large caveat. If you have a property that is over-levered, which lender, modifying the loan or work-out, etc? there are a lot, borrowers are going to have to either pay it down or find a partner who can help them with that. But for loans that are Thomas F. Nealon III: reasonably well margined, there is great demand for commercial Well, even just looking at our recent portfolio special servicing real estate lending among banks. One of the things that has been transfers in the month of November, well over half of them were going on for the last couple years is that banks have worked their maturity defaults or imminent defaults where it’s clear there is way through their legacy problems, liquidity is tremendous, and the not going to be a refinancing at maturity. I would anticipate that demand for earning assets has never been greater. In our bank, will be the major challenge that really characterizes all of 2012. It and we are also a servicer so we see it on some of the loans we will be interesting to see if the number is $25 billion or $35 billion, service, we have seen a lot of refinancing out of CMBS. But again, or what number we actually hit in terms of CMBS new issuance a generally, the good clients we will be lending to either have the year from now. I think that will certainly dictate, to a certain extent, ability to pay the loan down, or they bring some capital in to make whether refinancing is a viable alternative for lots of these proper- the deal work. ties that are hitting maturity. Brian P. Lancaster: In certain cases, it will up to the Special Servicers to determine Tom, just coming back to the servicing side, in terms of the type the appropriate resolution strategy. In our own case, we don’t look to extend the A/B loan structure absent some significant type of of resolutions that you foresee in 2012 — which forms do you anticipate will be the most common in the coming year? borrower equity infusion, so it will be again a case by case analysis. Borrower sponsors coming to the workout table ready to make an Thomas F. Nealon III: investment themselves would be a compelling rationale for us to work with them and do some kind modification. In the absence of I think much of this will be driven by what happens in the capital such sponsor investment we will continue looking alternatively to markets. Loan sales and discounted payoffs with borrowers will liquidate the property, either through the sale of the loan or to take continue to dominate. As Special Servicers we generally are looking in the property back and selling the REO. to try to resolve loans, as opposed to modifying them and extending for some limited period of time, but I think it will be slightly dependent Doug Tiesi: on the credit market and the size of the loan and the willingness of the sponsor to inject new equity into the property. What I am finding interesting about this discussion is the theme among the participants that the 2012 CMBS market is somehow All of us in the special servicing arena have recently been confronted constrained at $20–$30 billion. I think it’s important to stress that by large loans where, in many situations, the availability of financing there’s capacity far beyond $30 billion, probably up $60 billion is very difficult. Even in the case of a sponsor that has available which could be done with CMBS lenders. The key is really down to capital, they are not particularly inclined to put more capital into a pricing. I’ve talked to my competitors and colleagues and everyone property without some form of incentive. This is why the A/B work- wants to do more lending. It’s simply not getting done because out structure has come into play. I think the answer is somewhat our pricing was not competitive for a significant percentage of dependent on the size of the loan. The larger loans present much refinancings presented during the summer. The good news is the greater refinancing challenges and therefore are more likely to see fourth quarter volumes are looking stronger. A publication of Winter issue 2012 sponsored by CRE Finance World Winter 2012 9


CRE Finance World, Winter 2012
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