Lending Update: An Active 2011 Expected

By Paul House, Jones Lang LaSalle

Transaction flow in all product types, led by multifamily and office, has surged from the record-low level established in 2009; through the third quarter, the four primary sectors have seen a combined increase in volume of 92 percent for the year, and full-year sales volume appears headed toward $95 billion.

As the new year begins, Jones Lang LaSalle continues to actively collaborate with lenders pursuing new borrower acquisitions, restructures and opportunistic ventures behind a wave of budgeted capital allocations for 2011. Transaction flow in all product types, led by multifamily and office, has surged from the record-low level established in 2009; through the third quarter, the four primary sectors have seen a combined increase in volume of 92 percent for the year, and full-year sales volume appears headed toward $95 billion.

The CMBS market gained spotlight as issuance rose fourfold from 2009 levels. CMBS volumes were nearly $12 billion in 2010 and expected to increase to $25 – $40 billion in 2011, with nearly $8 billion expected to hit early in the first quarter. However, continued economic recovery and meaningful job growth will remain important determinants of future market strength. Loan terms for borrowers, institutional or private, today place a much greater emphasis on asset type and real estate risk, with core market multifamily and office receiving the best terms.

Generally speaking, lenders will continue actively lending on commercial properties at 50 – 65 percent LTC. The market is seeing some “outlier” deals, such as 70+ percent loan to cost scenarios; however, these are usually reserved for opportunistic/niche value added acquisitions or special borrower relationships, etc.

Given the gradual but continued economic recovery, we expect lenders to continue to actively participate within the CRE market. Additionally, we anticipate the fairways to widen for CRE lending across the board.