Commercial Real Estate: Mastering the Recipe

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Commercial Real Estate Market Starts to Cook as Lenders Try to Discover the Perfect Recipe for Making New Loans, According to John B. Levy & Company

. . .the market is seeing an uptick in the number of borrowers who have decided to access mezzanine debt.

While not even on the menu six months ago, the market for commercial mortgage-backed securities (CMBS) has become a front-burner entrée as lenders finally have all the ingredients for making new loans. According to “Mastering the Recipe,” the latest podcast produced by John B. Levy & Company (available online at, commercial real estate lenders continue to search for the right mix of leverage level and loan pricing as they try to bring a tepid secondary market to a simmer.

“After groping around in the dark for the right combination of ingredients, commercial lenders just might have found the right recipe for exciting the current market,” says John Levy, founder of John B. Levy & Company. “And this is happening as the Federal government – through the TALF program – seems to be backing away from helping private enterprise, both for the commercial and the single-family markets,” Levy adds. “Interestingly, only one of the three CMBS deals completed last year came through TALF, and this program expires shortly.”

As the TALF program comes off the lending menu, the market is seeing an uptick in the number of borrowers who have decided to access mezzanine debt. Today, rates for mezzanine debt fall in a range between 10 and 13 percent, a collapse from the 15 to 20 percent range of six months ago. These lower rates give borrowers additional leverage. Investors need either more equity, which they are now able to raise, or they need mezzanine debt because their existing borrowings cannot be replaced by a new first mortgage.

“The surge in the Dow certainly isn’t hurting matters,” says Levy. “A year ago, we were at around 6,500, and the banking system was on the verge of collapse. Today, the Dow is approaching 11,000. The banking system is starting to be profitable again, and people are paying off their TARP loans. It’s understandable that people look at the Dow and feel confidence. And in the financial markets, confidence expresses itself in a willingness among lenders to make new loans.”

But not all is well. Despite the growing confidence that comes from a rising Dow and upbeat loan market, smaller retail and community banks continue to be pruned. Those institutions with an asset base between $100 million and $10 billion that fall in the bottom 5 to 10 percent of their competitive set are at the greatest risk.

“Loan markets are definitely up,” says Levy. “People are entertaining new investments in the form of loans, preferred equity, mezzanine debt – for all types of property. We’re even finding an active market for shopping centers,” adds Levy, “and that’s after all the talk around the Christmas season that retail was dead. This doesn’t mean we’re running at thoroughbred pace, however. We’re more like the tortoise. But when you consider that we weren’t running at all six months ago, tortoise pace is good.”

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, which Barron’s published for 23 years, and 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 former 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.

A seasoned speaker, Mr. Levy has presented nationwide to major real estate associations and key industry groups, including the Mortgage Bankers Association and the Urban Land Institute. He has also appeared on Bloomberg and CNBC. Most recently, Mr. Levy appeared as a guest commentator on and

For more information about John B. Levy & Company, please visit our website at or call Andrew Little at 804-644-2000, extension 260. You can also follow us on Twitter at and become a fan on Facebook.


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Julia Grant
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