Posts Tagged ‘fixed-rate loans’
Top 10 Changes to Capital Markets
December 18th, 2009 | 
Author: 
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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Posted in Banking & Finance, Top 10 Lists | 
Tags: amortization periods, balance sheet lending, basis points, capital markets, CMBS, construction loans, DCR, debt coverage ratio, equity partners, fixed-rate loans, Loan-to-value, LTV, non-recourse loans, return hurdles, skin in the game, yields | 
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In Which Direction is CMBS Headed?
This post has been contributed by Richard Weidel, a Masters in Real Estate Investment Banking and Private Equity graduate student at Cornell University.
An interesting development is in the 11/6/2009 Commercial Mortgage Alert (CMA), headlined “JP Morgan Resumes CMBS Loan Program”. The article states that J.P. Morgan has restarted its conduit lending program, and plans to restart securitization next year. With the debt markets still frozen, and a looming commercial debt maturity balloon coming in 2010-2011, new securitizations could offer much needed liquidity to a tight CRE market. While JP has indicated that it plans to only originate fairly conservative, fixed-rate loans for securitization, this could be the impetus needed to improve investor confidence in CRE and bring money back to the debt markets.
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