Commercial Real Estate Finance

Posts Tagged ‘balance sheet lending’

As we round out 2009, one of the most interesting top 10 lists we could conjure deals with all of the various changes in the capital markets as it pertains to the commercial real estate sector.  The availability of capital has diminished significantly, and for capital that remains available, return requirements, interest rates and loan terms have all changed substantially.  Let’s take a look at the top 10 changes:

10. Shorter amortization periods for fixed rate loans by 5-10 years - Many banks have cut back the amortization schedules on loans from 30 years to 25 years, and from 25 years to 20, or even 15 years in some asset classes. Shorter amortization periods means more expensive annual debt service payments.  This of course has a subsequent effect on cash flows as well as tradition debt service coverage ratios.

9. More equity deals being structured with debt-like components - Equity partners have shifted much of the weight of their return to their preferred position.  This, of course, means that they face losing significant upside on strong deals.  However, they seem to be happy to trade that upside return potential for greater security of their minimal required return.

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