(Richmond, VA – January 22, 2008) – Following a year when originations for commercial mortgage-backed securities in the United States exceeded $240 billion, the market today is running at its lowest level since 2004. This slowing trend for CMBS originations, which takes the market back to the halcyon days of post-recession, pre-liquidity crisis, has an enormous impact on real estate developers who rely on liquidity to finance property transactions.
In its most recent podcast “Deer in the Headlights,” Richmond-based John B. Levy & Company targets these borrowers in an effort to help them understand the need to explore new sources of capital to finance their developments. This podcast continues the discussion initiated in a presentation broadcast in early January entitled “The End of Free Money.”
“In 2008, we’ll be lucky to reach $100 billion in CMBS originations,” says John Levy, principal of John B. Levy & Company, “and that’s a 60 percent reduction from the level we achieved in 2007.” Levy continues, “The market today resembles a deer in the headlights. While sellers are hoping to see the good old days of 2006 and 2007, buyers are reminded of the early ‘90s. The result? Nothing is moving.”
For real estate developers seeking liquidity in this market, Levy suggests they look at their portfolio differently. “Rather than selling properties with no debt or prepayable debt,” Levy suggests, “look at properties that have relatively new debt. That means these properties will have below market rates and above market leverage, making them extremely appealing.”
Levy’s well-timed podcast indicates that in this time of tight markets, real estate borrowers would be well advised to look for new sources when raising capital. The most obvious is the institutional market, which is populated by insurance companies and pension funds.
“Based on our nationwide Internet underwriting survey of 25 of the largest pension funds and insurance companies, we can say that most participants are running at full tilt and are now producing new annual originations in the range of $40 to $50 billion,” says Levy. “Though that’s substantial, it’s still off the pace of $240 billion set by the CMBS market in 2007. Life insurers are especially good providers of short-term debt for 3, 5, and 7 years, and their servicing is superior when compared with loans from the CMBS market. For sophisticated borrowers, they also offer fixed-rate, construction-permanent loan combinations.”
John B. Levy & Company, Inc. is a real estate investment-banking firm headquartered in Richmond, Virginia. 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. 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 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.
For more information about John B. Levy & Company, please visit the firm’s website at www.jblevyco.com or call Andrew Little at 804-644-2000, extension 260.