The combination of 4 speaking engagements and working on 4 new (or revived) lending products buried me during the last several months. Fortunately, I’ve navigated the course, and it is a new year. It is time to take a look back at 2012, and step out with some comments on 2013. New commercial real estate lending started to come back in 2012. Finally. Here are my observations on the distinctive attributes of this come back, and my prediction of what it will look like in 2013: Lessons from 2012:
- Tough Love: Loan documents are longer, and tougher. Lessons learned from the tough times now are included in many base commercial real estate forms. (I’ll comment on these in the future.)
- Rose Colored Glasses: Unfortunately, the “return” of lenders (and liquidity) to the market and the expectation of borrowers looks like this – a train wreck. Parked in the workout group during the tough times, loan originators return to loan production with fresh memories of tough loans characterized by inadequate underwriting, bad documents and inadequate personal liability. On the other hand, the strongest borrowers are flush with cash and are willing to place it into the project, with the expectation that the lender will reward the wise decision with reasonable terms and limited personal liability. These different perspectives collide during negotiations of the loan documents. It is not pretty.
- Fewer and Newer: In comparison to 2007, there are fewer lenders in the market. However, many “new” lenders are entering into new commercial real estate finance markets.
- Something for Almost Everybody: Yes, some real estate products remain tough to finance (office, retail); but over the last half of 2012 I worked on a broad range of commercial real estate –
– unsecured (registered) notes to a regional grocery chain – forms for a new (production) single family builder program (multiple states) – construction loans for senior living projects (multiple states) – permanent loans (multiple states) (office and retail)
- More of the same. Not flood waters more; but a steady, gradual improvement.
Over the next week, I’ll comment on my 2012 experience with distressed commercial real estate, and then the growing (and latent) impact of technology on investing in (and working with) commercial real estate. I hope that 2012 found you improved over 2011. Happy New Year.