“Debt” is going to be the name of the game for the European real estate markets in 2012, according to Emerging Trends in Real Estate Europe 2012, the industry forecast published by PwC and the Urban Land Institute. With daily reminders that interest-rate cuts on Greek bonds are still in limbo and debt-rating decreases for Euro-zone nations are on the rise, a turnaround looks to be tied directly to banks’ willingness to make commercial loans and whether the financial industry could face another collapse. The survey took responses from more than 600 commercial-property professionals across Europe to determine the overall course of the industry.

“The profound instability is affecting the providers of equity and debt,” Joe Montgomery, chief executive of ULI Europe, said. “We are operating in an environment that is very difficult to model. The uncertainty over the level of banks’ exposure to sovereign-debt default, coupled with uncertainty over the regulatory changes introduced as a result, has caused significant elements of the capital markets to be reduced to a state of near paralysis.”

In general, lenders are facing a level of pessimism over debt at levels not seen in years, according to John Forbes, the report’s author. Only 6 percent of lenders think that debt will be as available this year as it was in 2011, and a full 52 percent feel it will be substantially less available.

But not all news is gloomy, however. “The good news is that the view of respondents regarding the availability of equity is much more positive,” Forbes wrote. “Most promising is the response from institutional investors: 65 percent believe that equity will be moderately more available, with a further 10 percent believing that equity would be substantially more available.” And those lenders will play a significant role in the economy’s health, as all the players are interconnected. Mezzanine lenders need senior lenders to push debt into the marketplace, and insurance companies need time to build the right infrastructure to deploy capital.

With such uncertainty, it was difficult for the survey’s respondents to make sweeping generalizations about market sectors, but geography will certainly play a role in how investments will roll out from city to city. Istanbul, the report noted, has been the top market for commercial real estate investment for the past two years, “but that ranking is more a reflection of its long-term economic future than a sign that investors are about to rush to place their capital in the market.” And, while debt concerns continue to plague Spain and Italy, opportunistic investors may still see possibilities as banks begin to release assets later this year.

Overall, 2012 could be a turning point, the year that investors have been waiting for – or it may turn out to be a bust. Pressures from all directions could make finding funding solutions for banks an imperative, but whether investors get the bargains they would like is still very much an unknown. In general, the report’s bearish mood reflects the larger overall picture, and the coming months will certainly tell a clearer story.

Ziegler has facilitated a tax-exempt bank direct purchase on behalf of Covenant Retirement Communities. The direct purchase, completed by JP Morgan Chase, came in the form of two series of bonds totaling approximately $59.1 million.

The bonds included approximately $15.8 million of Series A product and $43.3 million of Series B. The majority of the proceeds were utilized to refund outstanding Series 1999 , Series 2004 and Series 2006 bonds. Additionally, a sum of roughly $6 million was reserved to finance capital improvements for several CRC facilities in Colorado, Illinois and Michigan. The seniors housing company has 15 continuing-care retirement community, independent living and assisted living locations in eight states from coast to coast.

The closing of the Series 2011 bonds marks a milestone for the Illinois Finance Authority, as the bonds constitute the agency’s first multi-state issuance after becoming a multi-state conduit issuer in July 2010.  “Gov. Pat Quinn and the Illinois General Assembly recognized that multi-state conduit issuance authority is an important tool to both retain and create jobs in Illinois,” Chris Meister, IFA executive director, noted in a prepared statement.

The banking industry should not hold its breath for a rollicking good time in 2012, as indicated by Trepp L.L.C.’s 2012 U.S. Banking Sector Outlook. The New Year is not expected to provide a flashback to 2008, but it will not bear any resemblance to the glory days either.

It’s been a good year for banks in terms of profits, but the industry can bid adieu to forward progress in that arena in 2012. After two years of earnings growth, banks will earn less next year. In an attempt to offset lost revenue, they will turn to customers by adding new fees and advocating the use of credit cards. However, this plan will only do so much as, according to Trepp, it will add only a nominal amount to non-interest revenue.

From a regulatory standpoint, things are only going to get more complicated and more expensive for banks. With any number of challenges still in place, in 2012 and 2013, bank failures will continue, albeit at a slower pace.

As it pertains to commercial real estate, the banking industry forecast is neither completely gloomy nor blindingly bright. Commercial real estate loan performance is anticipated to slowly but surely improve over the next year. However, stringent lending standards and the continuation of high delinquency rates will continue to prevent a full recovery next year and for quite some time into the future.

Scheduled to close in the first quarter of 2012, the transaction comes five years after Morgan Stanley acquired Saxon for $706 million in cash. Upon the December 2006 completion of the purchase, Anthony Tufariello, then global head of the company’s Securitized Products Group, said, “This acquisition is another important step in our long-term strategy of building a global, vertically integrated residential mortgage business.”

As of April, Saxon’s servicing portfolio included upwards of 169,300 loans totaling $29.2 billion in value, Fitch Ratings reported in affirming Saxon’s ‘RSS2+’ residential special servicer rating.  “The company’s strategy remains focused on subservicing of distressed mortgage assets,” Fitch stated in August.

“In 2010, Saxon increased its capacity through sales of mortgage servicing rights and sub-servicing arrangements for its legacy subprime portfolio,” Fitch said. “As a result, Saxon’s current infrastructure and excess capacity have positioned the company for significant growth through its pursuit of subservicing opportunities.”

CubeSmart is about to move to the head of the self-storage class. The company just signed a deal to purchase a 1.6 million-square-foot collection of premier properties in metropolitan New York City from Storage Deluxe for $560 million, including the assumption of $88 million of debt. The purchase will make Wayne, Pa.-headquartered CubeSmart the largest owner of self-storage properties in the Greater New York City region.

The group of Class A assets consists of 22 properties, 16 of which are spread out among three of the Big Apple’s five boroughs. Three facilities are located outside of New York City proper, in suburban Westchester County, and two more are in Connecticut. Rounding out the group is a property in CubeSmart’s home state of Pennsylvania. At mid-year, the facilities had an average occupancy level of 84 percent, which translated to an average realized rent of $26.07 per square foot.

CubeSmart, known as U-Store-It Trust until last month,  found ample financing for its half-billion-dollar purchase. The REIT will rely partly on $300 million of preferred and bridge debt financing from Wells Fargo. The remainder of the price tag may be financed through the company’s existing $250 million line of credit.  Additionally, the company will use a portion of the proceeds from its recently announced offering of 20 million common shares, which is expected to generate a gross sum of approximately $184 million. The acquisition dovetails with CubeSmart’s current goal of expanding its footprint in its core markets, which also include Chicago, Dallas, Miami and Washington, D.C.

The first phase of the transaction, involving the $357.3 million purchase of the 16 unencumbered assets, is on track to close during the fourth quarter.

Of note, it is anything but easy for investors to get their hands on a self-storage portfolio exceeding one million square feet. The self-storage sector, with its consistent cash flows, high returns and low loss ratios, is enjoying increasing popularity. “The imbalance between few offers and plentiful buyers has led to a greater interest in portfolio acquisitions, which are trading for a premium,” R. Christian Sonne, senior managing director with commercial real estate services firm Cushman & Wakefield’s Self Storage Industry Group, explained in a mid-year report. And the low level of new construction over the last few years is only heating up the competition.

Innkeepers USA Trust’s deal to sell a 64-hotel portfolio to a joint venture consisting of Cerberus Series Four Holdings L.L.C. and Chatham Lodging Trust as part of its Chapter 11 plan of reorganization is back on again. The agreement was announced in June, then fell apart in August. Now it’s been tweaked, and Cerberus and Chatham will acquire the assets at the previously agreed upon price of just over $1 billion, $1 million less than the previously agreed upon price.

The original deal called for Chatham and Cerberus to acquire the 64 Innkeepers hotels for roughly $1 billion, and in a separate transaction, Chatham would purchase an additional five properties (pictured) totaling 764 guestrooms for $195 million. Chatham completed its acquisition of the latter group of assets in July, but in August, Chatham and Cerberus put the kibosh on the 64-property deal. The joint venture partners explained that their decision to terminate the agreement was based on “the occurrence of a condition, change or development that could reasonably be expected to have a material adverse effect on Innkeepers’ business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects.”

Innkeepers cried foul and filed a breach of contract complaint with the U.S. Bankruptcy Court against Chatham and Cerberus. The complaint noted that “the Defendants’ last minute change of heart has nothing to do with any change in the performance or prospects of the fixed/floating Debtors’ business and everything to do with a calculated effort to renegotiate the terms of the parties’ deal.”

Now, two months later, any issues regarding the fixed/floating debtors–Midland Loan Services and Lehman ALI Inc.–have been rectified with the revised agreement. The modified deal calls for the fixed-rate debt serviced by Midland to be altered to the amount of approximately $675 million, and for Lehman, holder of the floating-rate mortgages, to receive a cash payment totaling $224 million to address its claims.

“The updated agreement provides a significant cash premium to the original stalking horse bid and a meaningful return to our creditors, and it allows us to move ahead with a timely exit from Chapter 11,” Marc Beilinson, Innkeepers’ chief restructuring officer, noted in a prepared statement.

Still, nothing is set in stone quite yet. The Bankruptcy Court must green light the new arrangement.

Seniors housing and healthcare powerhouse Ventas Inc. expanded its borrowing capacity with the closing of a new credit facility. Subsidiary Ventas Realty L.P. confirmed a $2 billion unsecured, four-year revolving credit facility, replacing a $1 billion facility scheduled to mature in April 2012. The new facility was priced at 125 basis points over LIBOR, an improvement over the 280-basis-point pricing of the earlier financing provision. The new facility matures in October 2015, with the option to extend the maturity date for another year under certain conditions, and includes a $500 million accordion feature that allows the company to expand its borrowing capacity.

Ventas chairman & CEO Debra Cafaro in a release attributed the company’s capacity to expand its borrowing capacity to its acquisition of Nationwide Healthcare Properties, a $7.6 billion deal that added more than 600 seniors housing, skilled nursing and medical office properties to the REIT when the deal closed in July. The deal was eight years in the making but resulted in “arguably the leading healthcare REIT by equity value,” noted Zacks Investment Research, which at the time of the deal lauded it for bringing “two of the most complementary customer franchises together in the healthcare real estate market” that “creates a diversified company with a better scope of operations.” The deal resulted in a company with more than 1,300 assets and an equity market capitalization of $17 billion.

Ventas has been actively acquiring companies in the past several years. Earlier this year, it purchased Atria Senior Living Group, the fourth-largest U.S. operator of assisted living facilities, for $3.1 billion. In July of last year, it acquired Lillibridge Healthcare Services for $7.6 billion. Also in recent years, it purchased Sunrise Senior Living REIT (2007), Senior Care (2006), Provident Senior Living Trust (2005) and ElderTrust (2004).

For more on Cafaro’s strategy for Ventas, click here to access “Winning Streak” in CPE’s October 2011 issue.

Image Courtesy Flickr Creative Commons user Jack W Reid

SunEdison must be glowing over a recent milestone. The solar energy services provider just obtained a $300 million three-year project finance revolving credit facility through Deutsche Bank Securities Inc. and Rabobank. SunEdison says the transaction marks one of the largest non-recourse revolving credit facilities ever closed for financing photovoltaic projects.

SunEdison will use the capital to finance the construction of utility and rooftop solar projects across the U.S. and Canada. The company, which has already deployed upwards of 500 solar energy systems in the two countries, appears to be on a roll when it comes to securing construction loans. Wells Fargo is providing $200 million for SunEdison’s five-plant project in New Mexico, marking the bank’s biggest renewable energy construction loan to date.

While the credit markets have not completely defrosted, banks appear to be warming up to renewable energy projects again. “Our recent research shows that a corner has been turned in lender attitudes to the renewable energy sector,” Ernst & Young reported recently. “Statistics show that 2010 and 2011 lending levels are returning to pre-crisis levels.”

However, lenders’ increasing activity does not come without some trepidation. “Rooftop solar PV showed a less favorable –at a high-level– view from the population of lenders,” the report said. “This is primarily driven by the need to reach a sufficient scale to justify transaction costs. In many markets, rooftop-aggregation increases risk of an overall portfolio. Large rooftop projects were perceived as lower risk.” SunEdison’s projects frequently fall into that latter category.

Sabal Financial Group L.P. has purchased a portfolio of more than 100 commercial real estate loans from a leading Midwestern bank. Secured largely by retail, office and industrial assets, as well as land, the group of performing and non-performing loans is valued at $153 million.

The assets serving as collateral are located in regionally diverse states, including Illinois, Wisconsin, Arizona and Florida, where a bevy of properties secure the distressed loans. Sabal’s purchase comes two months after the financial services management firm relieved a major Midwest bank of a $212 million collection of performing and non-performing loans secured mostly by income-producing commercial real estate properties and land in Florida, Illinois and Wisconsin.

“The need for banks to clear their balance sheets of problematic loans remains strong and this latest portfolio acquisition is representative of our ability to assist,” said Sabal CEO R. Patterson Jackson (pictured). Six bank failures last month brought the total for the year to 74, according Trepp L.L.C. Commercial real estate loans were largely to blame, accounting for 82 percent, or $365 million of the financial entities’ aggregate $445 million in non-performing loans, Trepp reported.

Sabal will provide loan servicing and asset management for its newly purchased portfolio, as it does with the portfolio acquired in August. “Our team’s real estate and banking expertise is significant and we are able to work out and enhance the value of these real estate assets more effectively than the banks, which are confined by regulations,” Jackson said.

RiverOak Investment Corp. L.L.C. is setting its sights on urban retail primed for repositioning with the initiation of a new investment vehicle, RiverOak Urban Retail Investors Fund I, with the goal of securing commitments totaling $300 million.

Urban Retail Fund I will target street-level retail predominantly at mixed-use properties with reasonable price tags in live-work-play central business districts. “The fund is really value-add so anything where our money can come to the rescue of the property, we will be interested in,” Stephen DeNardo, CEO of RiverOak, told Commercial Property Executive. “We’re not looking for properties that are already leased up with long-term leases on them where we can’t do much with them.”

While acquisition activity will focus on urban locations, there is one vital caveat: the area has to have a retail market capable of a relatively successful performance even in the midst of a less-than-stellar economy. Not every urban locale fits the bill. RiverOak did its research.

“To choose them, we did sort of a complicated statistical overview of every market of 500,000 people or more and then applied our criteria and weighed the criteria and so on, and it spit out seven markets as the top markets,” DeNardo explained. “They may seem self-evident, but it makes sense for a couple of reasons.”

Those top markets are Boston, Chicago, Los Angeles, New York, Philadelphia, San Francisco and Washington, D.C. “There are a few things they have in common,” he noted. “They’re all 24-hour cities, they have significant pedestrian traffic, they are among the top cities in the country for tourism and transportation systems and they all have a fairly significant university presence.”

Acquisitions will be limited to a very specific in property type as well. “No malls and we’re not looking at strip centers or anything like that,” DeNardo said. “There are plenty of people out there that already cover that. We feel that [the fund's target] is a niche that there are not a lot of players in. There are not many funds focused on it.

Already, he added, Urban Retail Fund I has attracted a fair amount of interest from institutional investors in the U.S. and abroad.