Approaching the lender: industry fears for existing loans - bleak outlook for real estate financing - Finance

Real Estate Weekly, May 20, 1992 by Lois Weiss

Greer expects some of the void will be filled over time by pension funds that have been buying real estate and looking at the yields today just through straight lending. "Some have hired advisors to find them loans so they are bidding loans," he noted.,

Met More Financial, is a wholly-owned subsidiary of Metropolitan Life and will lend up to $15 million for multi-family and where there are long term leases. George G. Haase, regional vice president, said the credit criteria for the industrial and/or office building has really become so stringent that investment grade for most large insurance companies is no longer Triple B but in the A category.

"The deals I see getting done are the ones under $10 million," he said. For the most part they are multi-family, he said, and then long-term leased properties, be it office or industrial or owner occupied properties. The hardest deals to finance, he said, are for retailers unless there are very strong anchors.

"Most of the food anchors have gone through LBO's, and lenders shun the deals because of this," Haase added.

Michael V. Corotolo, president of Michael V. Corotolo & Associates Inc. which acts as a mortgage broker said people are starting to realize that this is no longer the 80's and the "high dollars" that banks were offering are long gone. Appraised values are not coming in higher, he said, so the dollar amount that banks are offering is lower and more realistic and ensures that people keep their properties while the lenders make good loans. "People are starting to wise up and accept the money," he added. Corotolo primarily deals with residential and commercial loans in the $250,000 to $5 million range.

Banks will base loans on a 1 to 25 debt service coverage ratio and 75 percent loan to value, he said, but base it on today's value. People may say they have it based on their numbers, but the banks are using their own numbers and taking high rents and discounting them," Corotolo explained. "They know today's market is lower and if a tenant goes out, you put someone else in and they will pay less. They are reeducating the borrowers to expect the money they are being offered in today's market."

James D. Kuhn, president of J.D. Kuhn Properties, Inc., said there is plenty of money out there for equity, but very little debt money. "If I want to borrow anything there is no mortgage money around to buy but there is equity money," he explained. The properties that are being sold, he said, are being sold to someone with cash, such as a Wall Street house with its own money.

"There are plenty of people around buying all cash, but those who need mortgage financing cannot get it," Kuhn added.

William H. Stern managing director, Sonnenblick-Goldman Company, which represents Pru Express, said they lend up to $10 million and are aggressively in the market. Pru Express lends on certain underlying co-op mortgages as well as for rentals. "The banks are not coming back," he noted. He is working on several refinancings but complained, "It's a very, very thin market."