Bidding wars escalate

Real Estate Weekly, Feb 4, 1998

In most cases, there are lenders willing to accommodate the buyers.

"A couple of years ago they were willing to go 65 percent [of the purchase price], now they are willing to go to 80 percent, and in some cases, with mezzanine financing, they can go higher," said Swartz.

Thomas K. Graf. first vice president of Amalgamated Bank, which is a commercial lender, said because so many people are chasing the very few deals, the properties are trading "like commodities," and are trading at high multiples.

"The savings banks are trying to outdo each other at this point, and continue to lower the credit standards and accept inflated appraisals," worried Graf.

Since banks are trying to compete with low-cost money generated on Wall Street, that is also a potential recipe for future disasters.

"We're limited lenders and we pick and chose and are very selective, " insisted Graf. "As bankers, we don't chase deals. We won't match another bank. If a borrower tells us he could get 8 percent from Bank A and 7.75 from Bank B, we say, `Feel free to utilize those banks.' We feel that's how you get into trouble."

Graf said they look at the rents versus the expenses, and particularly at the expenses. "We like owner-managers and like to lend to people we know, and know of. We don't lend to investors new to the market, so we look to lend to family businesses where they have a track record. We are more concerned with who is controlling the property."

Russell Appel, who heads the CS First Boston Praedium Funds, which focuses on properties he says the REITs overlook, said "There are still inefficiencies in the marketplace and we seek relationships with local partners in the communities who can bring us those deals. If you ask me if the game is over, I don't think so."