Last month, I discussed what other disciplines are up against in today’s volatile economic climate. This month, I want to focus in on the Lending Environment and also something new to my firm which is an Accelerated Marketing Program called Power Sale for Commercial Real Estate owners who are having difficulty disposing their assets in a timely fashion.  What do you do when banks are virtually "out of business and you need to sell your commercial property?"

I reached out to over 40 lenders to ask them to share with me what has been taking place in their world as it relates to lending. I called on them because I wanted to find out if the things I am observing are real. I have noticed that many lenders are saying they are still looking to lend money, however, it seems as though this is not the case. I have spoken with clients looking to borrow money and they tell me this is quite a challenge in today’s climate. One developer I know told me that Principal Financial has been their biggest lender over the past several years. Today, they are facing a shortage of available funds to lend; Principal has a $1.2 billion loan portfolio, many of these loans are coming due for refinancing and only a mere $400 million is going to be available for placement in 2009! This is rather troublesome knowing that there are fewer lenders placing mortgages and lenders are going to be turning away their own clients as loans come due. If I were writing this article three years ago, I would guess that many more lenders would have responded to my inquiry given how aggressive so many of them had become; they were extremely eager to place money back then and it was readily available. The question is will there be enough lenders looking to place money for new loans as well as the refinancing of existing commercial loans as they come due over the next few years?

Of course, the few lenders that responded have told me they have not gotten involved with poor lending practices and they are still very much eager to lend money today. Daniel Schapira, Vice President from Oritani Bank, has told me that their bank is actively pursuing new loans, however, they have the ability to “cherry-pick” the ones they want to pursue. Oritani is in a great financial position and I am told that if they don’t lend any money in 2009, they will still turn a profit due to the good portfolio of loans they own.

Colleen Hanley, Vice President of The Provident Bank, told me that they are in good financial standing and aggressively looking to issue commercial loans today. They have maintained good underwriting standards over the years, which is why they just celebrated their 170^th anniversary back on February 27, 2009! Michael Raimonde, Senior Vice President of The Provident Bank has informed me that they are well positioned to tap into additional market share as other lending institutions face difficult challenges due to this current economic climate.

Andrew Coward, Vice President of Commercial Lending for New Millennium Bank has also assured me that Millennium is still lending money. Andrew recently closed on an owner-occupied refinance transaction for a 25,000 sq ft industrial/warehouse building in Northern NJ.  The loan amount was $1,200,000 and the building appraised for $1,600,000.  (75% LTV) The structure was 5-year adjusting rate at 6.25%, with resets every five years and matures in 15-years.  The loan amortized on a 30-year basis.  It was done with full recourse to the owner.    For the most part the typical structure is 5-year adjusting rate on a 20 or 25-year amortization either with a balloon or without.   Rates are between 5.5-7.0% depending on the risk.  For New Millennium Bank, recourse is pretty standard, however, there are non-recourse deals being done but the deal and credit of the borrower need to be very strong and at a lower loan to value ratio.

The above examples prove that lenders are active today, however, I was speaking to someone at another bank that told me there is some discussion that by the end of 2010, rates are going to be on the rise again, and the expectation is that rates will hit double digits once again. This could be devastating to the commercial real estate arena if this were to happen today, however, what happens when it does become reality, whether today or next year? I offer everyone to proceed with extreme caution and let me suggest that if you are looking for financing in the near future, try and lock down your rates for as long as you possibly can because if you have to refinance or readjust your interest rate on your loan down the road, what kind of affect do you think this will have on your cash flow? What happens to your rate when it goes from 7.5% to 8.5%? If you don’t know, you may want to begin doing your homework today!

I thought that it would be a nice transition to now focus away from the world of lending for a moment to introduce you to a new program NAI is proud to offer and it may be something you or your clients may want to find out some additional information. In an effort to respond to the volatility of today’s economic times, NAI has developed and begun to implement a new program called Power Sale, which is an accelerated marketing program designed to offer Owners the ability to dispose of their commercial asset(s) through an auction process that eliminates the long, drawn out quintessential sales process. This program is also designed to eliminate property owners from the responsibility of paying a typical sales commission to a Broker. I have the ability to provide you and/or your clientele with additional information on this new program if you simply email me your request to dlizzack@naihanson.com or call me directly at 201-478-7372. Furthermore, I can arrange a presentation at your office (or mine) to provide you and/or your client(s) with detailed information in order to help determine if this is something you or your client(s) wish to pursue.

I want to thank you for your time and consideration reading this month’s issue and I look forward to sharing more with you next month. Below is the contact information of the three lenders I have mentioned above (in order of appearance) and I hope that if you have any lending questions, you feel comfortable to reach out to them at your convenience. Please tell them you got their contact information from me even though I assure you I have no vested interest in any transaction you may be able to put together with them. But I can assure you that you will be in good hands working with them!