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CRE Finance World, Winter 2012

Roundtable: Outlook 2012 Doug Tiesi: Over the last few weeks, we have seen the tide begin to turn. I think all of these points are valid, and I agree with a lot of them. Off of the back of several successful transactions, including the I believe some of the comments that underwriting standards are WFRBS — C5 transaction, credit spreads have tightened, which deteriorating are a bit unfair. We have definitely seen underwriting has resulted in ten years loans being offered near 5.5%. In my standards becoming more relaxed from a year and half ago, but view that is a threshold rate level where we attract borrowers back at that point I think underwriting standards were at an all time to the CMBS sector. I’m hopeful that volatility can remain within a tight. I actually congratulate the industry for continuing to reject a range and we can start to see volumes move back up. large number of loans that would have been written pre-crunch. A number of CMBS lenders are saying that a large percentage of Steve Kraljic: requests simply have too much leverage or the properties are not Just to clarify that, I know that some may take issue with my fully stabilized I think that’s part of the reason why we are also not complaining about the quality of the underwriting. Let me just say seeing volumes grow because we are not seeing the stretching this. Clearly we are no way near the aggressiveness that we saw in that naturally occurs within an over expanding market. Most CMBS ’06–‘07 that took on a life of its own. But, I do think that the trajectory lenders are trying to protect their programs and making sure that of the underwriting from where we started in the first post-apocalypse their bonds are attractive to investors and B-piece investors. deals at the end of ’09 and the start of 2010 to where we are today has been too great. I expected — and I understood — that Brian P. Lancaster: we were going to start at the most conservative underwriting as Right. Doug, Steve mentioned the volatility. I’ve seen that has possible with the first deals, but I just think that now we’re already seeing corners being cut and leverage increases which are not been an issue certainly in the legacies in the CMBS market with all these issues in Europe and Italy. Steve mentioned several quite digestible for investors considering where we just came from. I don’t think investors are expecting 50% LTV loans to be other elements of the picture that he feels is preventing a true renaissance in the market. Doug, do you feel if Europe weren’t the norm, but I do think there are certain assets where leverage is being pushed too far, considering where they are located and how there, how do you think the business would look? Would be seeing a lot more deals? they are positioned in the market. I think some of the underwriting is a bit aggressive, especially since you’re talking about many assets Doug Tiesi: in secondary markets. So that’s really just the perspective from my vantage point — I just think that we’ve gotten too aggressive too Obviously all of the issues that are mentioned have an impact. But quickly. And I doublt I’m the only investor that thinks that, because what we’ve seen from our side is that volatility has had the largest we’ve certainly seen some push back on deals this year — not all, impact on originations volumes over the last 3 to 4 months. Basically, but some — that were ultimately delayed because there wasn’t volatility has resulted in higher pricing being passed on to potential enough interest in the deal. borrowers. Effectively credit spreads widened out by over 100 basis points over a very short period of time pushing rates to Doug Tiesi: 6–6.5% for 10-year lending. That’s a very interesting point. And I agree with you. I think we Borrowers reacted in two ways. One, they moved whatever they have to be careful not to paint the entire issuer community with could into the life insurance sector and commercial banks sector the same brush. If there are certain transactions with higher lever- which were offering similar leverage product at much more attractive age on poorer quality collateral then I hope that investors would rates, in some cases 150 base points tighter, or Two, they delayed push back. Hopefully investors will reward programs that adhere their refinancing into 2012. There was a period in the late summer/ to tighter underwriting standards or write low leverage loans on early fall where very little CMBS lending was getting done. This had higher quality assets. certain knock-on effects which were all trying to deal with right now. When we have lower volume it means we’re not achieving the Steve Kraljic: targeted diversity in our transactions which result in more upwards I agree. There should be differentiation in the market. pressure on pricing. It means that large loans that typically would fit into CMBS transactions no longer fit into those transactions. Loans Brian P. Lancaster: of $300 million now cannot get CMBS pricing which has resulted Is that going on? Are investors differentiating deals in the market? in upward pricing pressure on those types of loans. Collectively, this has resulted in a slow period for the industry. CRE Finance World Winter 2012 12


CRE Finance World, Winter 2012
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