Where has all the commercial real estate liquidity gone?

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In its most recent podcast, John B. Levy & Company gives real estate borrowers three tips for executing deals in what will likely be another tumultuous year in the capital markets.

Where Have All The Flowers Gone?

In an effort to provide developers and investors with the information they need to transact business efficiently and profitably, John B. Levy & Company is producing a series of podcasts on trends and issues that affect the commercial real estate market. These podcasts, available at http://www.jblevyco.com, address issues such as strategies for improving liquidity in a tight market and the impact of slowing loan originations on the commercial real estate industry.

In its most recent podcast "Where Have All The Flowers Gone?," the firm gives real estate borrowers three tips for executing deals in what will likely be another tumultuous year in the capital markets.

First, have realistic expectations - this is the longest recession we've had since the Great Depression. While most people grew to love 75 - 80% leverage in the glory days of 2005 - 2007, borrowers should expect something more in the range of 60 - 65% this year. If you're borrowing from a bank, plan on full or partial recourse. If non-recourse is a requirement, then you'll want to borrow from an insurance company or pension fund. And if you have your heart set on an interest-only loan, then plan on a broken heart as these loans are essentially not available today.

Second, how to handle CMBS loan maturities. First, don't panic. Clearly, the 2008 CMBS market was ugly - volume was down over 95% from 2007 volume. But CMBS is not dead forever - it will come back eventually, but with some structural changes. If you have a loan coming due, most special servicers are empowered to extend loan terms, change rates and make other loan modifications. They aren't in the loan-to-own business, so their first choice isn't to foreclose on your property - they want to have the loan paid off. They'll probably try to grant an extension even if it's not an extension you call terrific - higher interest rate, additional cash equity requested, or principal amortization.

Third, with the current credit crunch, it's an excellent time to leverage good multifamily products. Thanks to Freddie Mac and Fannie Mae, multifamily is the only asset class with a semblance of normalcy. Rates are cheap - 6% fixed range (4% and lower for floating), 75-80% leverage, and non-recourse.

Firm Background
John B. Levy & Company, Inc. is a real estate investment-banking firm headquartered in Richmond, Virginia. Since John Levy founded the company in 1995, the firm has structured over $3.5 billion in financing for developers and owners of commercial and multi-family projects nationwide, often investing its own proprietary funds into transactions with its clients. Mr. Levy is an expert on commercial real estate financing and the effects of interest rates on commercial real estate markets. He is the originator and author of the Barron's/John B. Levy & Company National Mortgage Survey, a monthly survey of more than 30 of the country's largest institutional investors, as well as buyers and sellers of commercial mortgage-backed securities, which Barron's published for over 23 years. Mr. Levy is also co-creator of The Giliberto-Levy Commercial Mortgage Performance Index (sm), the first and pre-eminent index to measure and analyze the performance of investments in the commercial mortgage industry. Additionally, he is a member of the Board of Directors of Anthracite Capital Inc. (NYSE: AHR), a New York Stock Exchange REIT managed by BlackRock, Inc and a former director of Value Property Trust.

For more information about John B. Levy & Company, please visit the firm's website at http://www.jblevyco.com or call John Levy at 804-644-2000, extension 237.


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