Commercial Mortgage News

Many owners of health care facilities are finding that projects that could have gotten financing directly from commercial banks are unable to access that source now, according to an attorney who is an expert in the field. Andrea C. Barach, a partner in the Health Care Practice Group at Bradley Arant Boult Cummings LLP, Nashville, said this is due to tightened credit requirements, increased cost and/or inability to access funds through interbank markets. Ms. Barach, who advises health care facilities regarding financing options, said this has led those who need credit to reconsider applying for Federal Housing Administration-insured loans. "The terms are extremely attractive, and in many cases the FHA financing will be the only viable option for many borrowers. FHA financing offers a way for owners to control costs and maintain a predictable level of debt service," she said. While the FHA program still has its heavy red tape and compliance requirements, it has been streamlined. "The new Lean processing system should make financing more attractive by reducing processing time and bureaucratic red tape," said Ms. Barach, who added borrowers should work with lenders who have experience doing the Section 232 program.

Most commercial mortgage investor groups saw an increase in their loan delinquency rates in the fourth quarter, according to data gathered by the Mortgage Bankers Association. MBA's Commercial/Multifamily Delinquency Report found between the third and fourth quarters, the 30-plus day delinquency rate on loans held in commercial mortgage-backed securities rose 1.63 percentage points to 5.69%. The 60-plus day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.01 percentage points to 0.63%. The 90-plus day delinquency rate on multifamily loans held or insured by Freddie Mac increased 0.04 percentage points to 0.15%. The 90-plus day delinquency rate on loans held by banks and thrifts rose 0.49 percentage points to 3.92%. In a rare bit of good news, the 60-plus day delinquency rate on loans held in life company portfolios decreased 0.04 percentage points to 0.19%. Jamie Woodwell, MBA's Vice president of commercial real estate research, said, "Continued job losses, consumer restraint and a lack of household growth all sustained the pressure on commercial real estate operations and mortgages during the fourth quarter."

The sale of commercial mortgage-backed securities servicer Centerline Servicing Inc. to an Island Capital affiliate has reversed the ratings damage caused by its corporate parent's financial woes, according to analysts. Fitch said Wednesday due to CSI's sale to C-III Capital Partners LLC it has upgraded CSI's CMBS servicer ratings, reversing a December 2009 downgrade based on the financial condition of its corporate parent, Centerline Capital Group. Fitch, which noted that its servicer ratings in part are driven by companies' ability to retain staff and their operational strength, said C-III "has indicated that it plans to retain CSI's servicing management and staff, its servicing and asset management systems and policies and procedures."

The aggregate value of commercial real estate loans priced by DebtX to collateralize mortgage-backed securities increased to 76.7% as of Jan. 29, 2010, up from 75.9% as of Dec. 31, 2009. Loan values are down from 81.3% compared to January 2009. "Loan prices rose in January due primarily to the downward shift of the treasury yield curve and a modest tightening of whole loan spreads," said DebtX chief executive Kingsley Greenland. "These improvements in the capital markets were partially offset by weak commercial real estate fundamentals." Boston-based DebtX priced 59,759 commercial real estate loans with an aggregate principal balance of $700.2 billion during January.

The 30-day delinquency rate on securitized multifamily mortgages hit 9.87% in February, up 16 basis points from January, according to Trepp LLC. The expected default on the Stuyvesant Town and Peter Cooper Village apartments in Manhattan could push the delinquency rate close to 13%, according to the New York firm, which tracks the performance of commercial mortgage-backed securities. The owners are still current on the $3 billion in mortgage debt. But they have nearly depleted the 11,000-unit complex's reserves in making the last payment, according to Trepp analysts. The Trepp report shows that the 30-day or more past due delinquency on all securitized multifamily and commercial mortgages hit 6.72% in February, up from 1.67% a year ago. The serious delinquency rate (60-days or more past) on CMBS is 5.97%, up from 1.3% a year ago. The Federal Deposit Insurance Corp. recently reported that 1.2% of multifamily mortgages held by banks and thrifts are 30-89 days past due. The delinquency rate on other commercial mortgages is 1.24% as of December 31.

Signs of hope for new commercial mortgage-backed securities issuance are emerging in some quarters but in others opinions about the market's prospects are somewhat mixed. Broker Summit Capital said Thursday that it "will begin analyzing the feasibility of financing transactions in order to place an approximate $380 million pool of non-recourse capital." President John Stueber said, "We believe this is the first capital of its kind to come out" and the move "signals the new beginning of CMBS in regards to the hotel real estate sector." Mr. Stueber said, "There's approximately $380 million available for hotel and commercial real estate assets. There's room for roughly 17 or 18 deals and that's it. Once that capital is used, the entity will securitize this capital pool and make a decision on whether this was a successful run or not. If it is, I expect that they will inject more capital into this type of financing again." A day earlier, Malay Bansal, head of portfolio management for commercial real estate and CMBS at NewOak Capital, summed up the outlook for the CMBS market as follows: "With Legacy TALF coming to an end after March, DDR dropping its planned CMBS deal, and few new deals on the horizon, the CMBS market may be headed for slower days. DDR was the first to do a new issue CMBS deal last year using TALF. The planned second $300 million deal was cancelled after it was able to raise $300 million by selling equity. Yet the fact that DDR preferred to raise funds elsewhere, instead of a CMBS deal, does not mean that CMBS [are] not needed or that others will not want to take CMBS loans. If DDR had not been able to refinance maturing loans by doing its first CMBS deal in November, it would not have found the equity markets that hospitable."

DebtX, a full-service loan sale advisor based in Boston, is selling $105.5 million in primarily non-performing loans for a regional bank in the western United States. The portfolio is comprised of 71 loans and 33 relationships. The collateral includes commercial and residential properties located primarily in California, Washington, Oregon and Arizona. The three largest loans in the pool have a combined principal balance of $47.6 million. Bids are due by 2 p.m. Eastern Daylight time on Monday, March 22, 2010. Due diligence materials are now available at www.debtx.com. "Over the past six months, the number of bids per offering at DebtX has increased an average of 25% due to heightened demand for performing and non-performing loans," said DebtX CEO Kingsley Greenland. "A growing number of equity buyers are seeking to re-enter the commercial real estate market by purchasing loans because many distressed properties are in default or are unable to service their debt."

Fitch Ratings has downgraded the individual rating of Sterling Bancshares Inc., Houston, from B/C down to C over concerns regarding its commercial real estate exposure and its potential impact on future financial performance. The bank's loan portfolio includes a high percentage of CRE loans, 62%, at Dec. 31, 2009, which Fitch said is "notably higher than peer averages." Sterling's loan exposure outside Texas (11% of total loans) also increases the company's risk profile, and could lead to higher credit costs. Fitch said it considers CRE an area of future concern for U.S. banks. The company's rating outlook has been revised to "negative" from "stable." The rating agency added, "In considering future rating actions, Fitch will focus on Sterling's ability to manage its CRE exposures, enhance its management reporting structure, and address issues cited in the informal agreement." Sterling disclosed in its 2009 10-K filing that it is operating under an informal agreement and will be submitting an updated capital plan, among other things, to the regulators. Fitch is also concerned that J. Downey Bridgewater, the chairman and chief executive, has also taken on the duties of chief risk officer at Sterling.

The Metropolitan Transportation Commission, which covers the nine-county San Francisco Bay Area, is making a $10 million commitment to affordable housing through its Transportation for Livable Communities program. The money will be used to establish a revolving loan fund to finance land acquisition for affordable housing development near rail and bus lines in the Bay Area. MTC added it hopes to grow the fund to at least $40 million by attracting matching commitments from private foundations and other investors. The Bay Area Affordable Transit-Oriented Development Fund is modeled on similar funds in Denver, Los Angeles, Minneapolis, New Orleans and New York. Based on information provided by Bay Area cities and developers, MTC staff estimates a $40 million TOD fund could be used to help finance the acquisition of at least 20 to 30 acres around the region, which, depending on the density of build-out, would support development of anywhere from 1,100 to 3,800 units of affordable housing. "We think the slow housing market makes this an excellent time to make this investment," commented MTC executive director Steve Heminger. "At a time when lending, especially for affordable housing, is almost nonexistent, this fund can not only triple the impact of each TLC dollar but also play a critical role in preserving sites for affordable transit-oriented development while the credit markets and bond institutions recover to support affordable housing construction again."

Brookdale Senior Living Inc., Nashville, entered into a new $100 million revolving credit facility, with an option to increase the commitment to $120 million. The new facility replaces Brookdale's existing $75 million revolving credit agreement that was scheduled to expire in August 2010. The revolving line of credit may be used to finance acquisitions and fund working capital, capital expenditures and other general corporate purposes. GE Capital, Healthcare Financial Services, acts as administrative agent as well as a lender under the new line. The new facility matures on June 30, 2013 and is secured by a first priority security interest in certain of the company's properties. The commitment will be limited to $80 million pending finalization of documentation for the remaining $20 million, which is expected within the next week. The availability under the line may vary from time to time as it is based on borrowing base calculations related to the value and performance of collateral securing the facility. "The new facility provides us with increased flexibility and capacity which will be instrumental in Brookdale's future growth," said chief executive Bill Sheriff.