Private Equity, Government Expect Increased Lending

Of nationwide lenders to the commercial real estate sector, 53 percent expect loan production to increase from 2008 to 2009, according to Jones Lang LaSalle Inc.’s annual Loan Production Outlook survey, conducted at the Mortgage Bankers Association’s Commercial Real Estate Finance/Multifamily Housing Convention & Expo last month. Private equity lenders and government agencies expected increased lending, noting an average expected rise of as much as 20 percent. Banks and life companies, however, expected volume to decrease anywhere from 30 to 80 percent.This year, 80 percent of respondents predicted that as much as 40 percent of each their companies’ loan allocations will go toward refinance maturing loans within their existing portfolios. The low LIBOR rate is allowing many hotel owners to avoid technical defaults despite a drop in revenues. Yet, because LIBOR-based loans are generally shorter term and the refinancing and sales markets remain dislocated, maturity defaults loom on the horizon.Asset-level distress in hotels is not yet widespread, but systemic RevPAR declines are accurately being interpreted as precursors of delinquent and defaulted hospitality mortgages. Hotel operators and investors that recognize that their debt service could be in jeopardy are proactively undertaking a diagnostic review, putting yield-management controls in place and defining cost savings to protect investment value.While owners seek to streamline operations, shore up their capital positions and de-lever assets, investors are attempting to capitalize on distressed opportunities by buying loans or take-over assets at a discount. Select, well-capitalized investors are able to use all-cash offers to acquire opportunities that generate outsize returns. Lenders are increasingly amenable to unloading no-longer-attractive loan positions to more strategic holders, freeing up capital that can be redeployed at a low basis and extraordinarily high rate.