“CMBS is back” — virtually unheard in 2009, mostly a whispered hope in 2010 and a cautious claim in 2011 — is a growing chorus in 2012 and it rang in ears at The Mayor's Development Roundtable.
CMBS, commercial mortgage-backed securities, made the commercial real estate world go 'round until the credit crash and the Great Recession in 2008. Their near absence in 2009 — and, for the most part, until last year — hit Wall Street and Main Streets nationwide, when so-called conduit lending and private commercial development stopped cold.
This year will see nowhere near the $300 billion per year at the peak. Projections range from $25 billion to $45 billion in 2012. Nonetheless, development capital proceeding from such bond sales picked up last year and took off in the first quarter.
In other words, big lenders are making loans for commercial real estate projects again, bundling notes together and selling the aggregate income from them to investors — then taking the proceeds and making more loans.
“CMBS — we love it,” developer Richard Tanenbaum said at the round-table event Wednesday at Cox Convention Center.
Without it, he said, developers draw on local or regional bank lines of credit as much as their credit standing could stand, then “we were stuck.” Developers find rare equity partners, or try to sell sound income-producing property to get capital to leverage into new development projects.
With Wall Street backing in the form of renewed securitized capital and non-recourse loans — meaning the income-
For their part, off-Wall Street lenders continue to sing the cautious song. Panel moderator Judy Hatfield, owner-principal of Norman-based Equity Commercial Realty — and a housing developer in downtown Oklahoma City — asked the lone banker on the panel to explain how increased federal regulation of lenders was crimping local commercial lending.
John Slay, executive vice president and manager of commercial lending for BancFirst, did not let regulators take the hit, even when an audience member asked why banks put no caps on lending rates or floors on deposit rates.
“It's important to understand that banks have a certain level of fixed costs. It costs so much to open the doors and turn the lights on,” he said, noting also that deposit accounts, banks' bread and butter, are variable costs — since deposits can be withdrawn on demand.
No deals forlorn
Is there any type of commercial lending that banks won't consider?
“Honestly, no. Banks are in the business, like you are,” he said, to make money on good investments.
“We try and listen ... and understand as much as possible and share the vision of the developer who might be bringing the idea. The objective is to get the deal done.”
However, asked what kinds of projects lenders are more likely to fund, Slay said, “More on the retail and office side — commercial. We continue to be challenged a little with the residential side.”
Bankers have to be as creative as developers, as well, he said, “and part of that is understanding the project and maybe bringing in some ideas” such as Small Business Administration programs or tax credit funding.
Give 'em credit
Tax credit financing — that is, selling future tax credits tied to, say, historic preservation, low-income housing or investment in low-income areas — has provided a bridge between the equity developers can bring to a proposal and capital accessible from local commercial lenders or conduit loans, said panelist Chuck Wiggin, president and CEO of Wiggin Properties.
“The project has to stand on an economic footing,” Wiggin said, but “tax credits can make the difference.”
Meanwhile, capital controlled by institutions and others enamored with the biggest markets, he said, is discovering Oklahoma City. They are “looking to healthy secondary and tertiary markets. Oklahoma City is in good position,” Wiggin said.