Stuart Eisenberg: The Financial Oxygen Flows Again?

Even in times of lean and mean credit, lending remains the lifeblood--the oxygen in that lifeblood--of commercial real estate.

Even in times of lean and mean credit, lending remains the lifeblood–the oxygen in that lifeblood–of commercial real estate. The question on the industry’s mind virtually since the first days of the credit squeeze in 2007 has been, “Where are things going to get better?” in terms of CRE finance.

So far the persistent answer to that question has been, “Later.” Now the answer might be “Sooner rather than later,” but the outlook is still a bit murky.

Recently, Commercial Property Executive contributing editor Dees Stribling spoke with Stuart Eisenberg, partner and national director, real estate and hospitality practice, at the international accountancy BDO, to get his thoughts about CRE finance in our time. He’s optimistic about some kinds of deals going forward, but things will continue to be tough for underwater borrowers and lenders.

Is the consensus that CRE underwriting became too tight because of the panic and the following recession, or just about right?

Eisenberg: In recent months, the underwriting environment for properties with a quality tenant profile has improved to levels that are allowing deals to happen. Loan-to-value ratios between 65 percent and 75 percent are available for various property types and debt yield requirements have started to decline. Another factor that is expected to continue to add liquidity to the market is the expected return of CMBS financing in the next six to nine months.

How will the industry deal with refinancing properties financed at the height of the bubble?

Eisenberg: Other than the continuation of “hold and hope,” there does not appear to be a plan in place to address the refinancing of properties financed at the height of the market. Lenders appear to be more active in taking possession of assets, but seem willing to hold and operate the assets in order to market and sell as market conditions improve.

Can loans on the books continue being continued?

Eisenberg: The financial institutions may have the capital and willingness to continue this non-strategy for the foreseeable future. But it’s unclear what will happen with properties financed with securitized debt as the special servicers are forced to deal with the requirements of the pooling and servicing agreements in addressing these loans.