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CRE Finance World, Winter 2012

Roundtable: Outlook 2012 Nelson Hioe: I think the other thing that has given us a little pause is that the The discussion around the OA gets to the heart of trying to increase regulatory environment is still very unsettled and we’ve been un- the transparency and effectiveness of CMBS governance. I think willing to invest a lot in infrastructure to deliver loans. Until we get more definition needs put around the OA, and a lot of people are comfortable that whatever the rules are, we can make money. So talking about it conceptually, but things need to be made more for us, in 2012 I think we will be pretty much on the periphery. concrete and tangible in terms of what skills sets are required of the OA, how exactly they are going to play in the process, and Brian P. Lancaster: at what point and how they are going to get paid in a way that For your own portfolio, what does your portfolio look like in provides them with the appropriate incentives perform the role that terms of size, loan types, geographies and property types? people want them to. The good news is there are a good number Do you see commercial banks as doing more fixed rate lending of folks who are thinking right now about the proper structure and and loans with longer maturities? how it will work most effectively. Ultimately I’m in favor of anything that can bring increased transparency to the process and help E.J. Burke: investors make more informed decisions based on the greatest Sure. First of all, in 2008 we held about $24 billion of commitments possible amount of information. I definitely think there is a way for in commercial real estate, today that is down to about $10 billion the OA concept to grease those wheels. With that said, we need to today. Of that $24 billion, 51% were construction, loans. Today, be mindful of the fact that neither the OA, nor any party, is able to that type of loan only represents 15% of our portfolio. Conversely, play the role of global “watchdog” or “traffic cop” on a transaction. about 40% of our portfolio today would be represented by either For the most part I think the structures that have been developed revolving loans or term loans our REIT practice has been pretty and are currently in use are not fundamentally broken, and for consistent throughout the credit crisis we’ve had great experience the most part they are working pretty well. In the end, we need to with it, and we’re going to continue in that vein. take it upon ourselves to make good decisions and not necessarily expect the market to be a self-regulating machine. Every player The other thing that we are doing today that is a bit different than in a transaction is being steered by a unique set of incentives and pre-crisis, we’re very focused on owners of real estate developers, that tension is going to exist in all deals; the OA, while potentially and consequently we’re doing a lot more bridge lending and we’re helpful in facilitating the flow of information, is not going to solve doing some term lending, we’re even doing fixed rate lending, all those fundamental tensions. the way out to 10 years which we’ve never done before. Our fixed rate lending is largely in response to a lack of alternatives for our Brian P. Lancaster: treasury group. Overall, the bank does not have alternatives that it E.J., let’s look at the market both from the perspective of a balance likes and we’re incredibly liquid today. They like the idea of some stable sheet lender and loan contributor to CMBS deals. From the period fixed rate assets, so we’re doing a little bit of that. Geographically 2000 to 2008, Key was an active conduit loan contributor, since it is no surprise. We were at one time pretty heavy in Florida, the 2008 you haven’t been active. What are your plans for 2012? Carolinas, Georgia, Southern California, Nevada, and Arizona. I would say with the exception of Southern California, we not doing E.J. Burke: very much in those markets. Our banking footprint is more of the Brian, if you think about where we were 2007-2008, our clients northern tier of the United States. We’re doing a little bit more needed the product and it made great sense to provide it. That’s there, again not much development lending but more on stable still true today. But we just had a very lengthy discussion about cash flows on existing properties. volatility and we’re on the sidelines because we just don’t believe that the rewards right now are commensurate with the risk in terms Brian P. Lancaster: of volatility between the time you commit pricing to a borrower Would you say E.J. that this trend – this compositional shift or specific underwriting structure and the time you actually price. — from floating rate loans from Wachovia that was sort of the We’re just now starting to originate some loans but on a very small bread and butter, lots of floaters, some stabilized finance, and basis, just to keep our toe in the water. Until we can see that we shifted away from construction to more term — is that more of can control the aggregation risk we’re unlikely to commit a lot of a trend you are seeing across the board in commercial bank money to the aggregation process. sector? Doing more fixed-rate lending? Is that a trend you are seeing across the board? CRE Finance World Winter 2012 16


CRE Finance World, Winter 2012
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