2012 commercial real estate lending survey
TRANSCRIPT
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NATIONAL ASSOCIATION OF REALTORS RESEARCH DIVISION
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NATIONAL ASSOCIATION of REALTORS | RESEARCH DIVISION | www.realtors.org/research
CONTENTS
Introduction
Survey Results: Market Environment
Survey Results: Lending Environment
Survey Results: Small Business Administration Loans
Survey Results: Legislative/Regulatory Issues..
Survey Results: Additional Comments.
2
3
4
7
11
12
15
Copyright 2012 NATIONAL ASSOCIATION OF REALTORS. Reproduction, reprinting o
retransmission in any form is prohibited without written permission. For questions
regarding this matter please e-mail [email protected].
THE NATIONAL ASSOCIATION OF REALTORS, The Voice for Real Estate,is Americas
largest trade association, representing 1.0 million members involved in all aspects of
the residential and commercial real estate industries.
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INTRODUCTION
Economic activity closed 2011 with a moderately positive performance.
Consumer spending kept a steady pace over the year. Corporate profits reache
record highs, as companies continued to trim expenses. Businesses increased
their spending by nearly 10 percent, and private payroll employment grew by
more than 2 million in 2011. Exports grew at a healthy pace, as did imports.
Even with no measurable change to the net position, the rise in international
trade naturally brought additional demand for commercial properties.
Regulatory and economic uncertainties, however, have been forcing companie
to hold on to high cash reserves. Employment remained hampered and
continued to require the addition of more than 4 million jobs just to recoverthe jobs lost during the harsh recession of 2008-09.
Consumers embraced the end of 2011 and start of 2012 with a cautious sense
of optimism. However, the direction of labor markets remained a concern,
casting a long shadow over the economic outlook.
Commercial real estate markets turned the corner in 2011. Demand stabilized
and is expected to grow in 2012 for all property types. Vacancy rates declined
and rents began rising. With growing households and a tight supply pipeline,the apartment sector is especially well positioned for 2012.
Investment activity recorded a positive 2011. Based on data from Real Capital
Analytics, more than 13,000 major properties traded hands during 2011,
totaling $205.8 billion in sales, representing a 51.0 percent increase from 201
With corporate profits at record highs, major economic centers like
Washington, D.C., New York, Boston and San Francisco were attractive
investment targets. In addition, declining cap rates for trophy properties lured
investors towards stable secondary markets, where returns proved more
appealing.
Against this backdrop, the National Association of REALTORS conducted a
national survey of commercial real estate members, focused on lending
conditions. The results are based on 474 survey respondents*.
EORGE RATIUanager, Quantitative &
mmercial Research
3
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SURVEY RESULTS: Market Environment
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76%
21%
3%
Have you completed a sale transaction over
past 12 months?
Yes
No
N/A
0% 5% 10% 15% 20% 25%
Office: CBD
Office: Suburban
ustrial: Warehouse
Industrial: Flex
Multi-familyRetail: Strip Center
Retail: Mall
Land
Hotel
ther, please specify
Property type of most recent sales transaction
0% 20% 4
Auto Dealer
Car Wash
ChurchConvenience Store
Freestanding Retail
Mixed Use
Restaurant
Hospitality (owner)
Other, please specify
20%
80%
Sales to international clients/investors over
past 12 months
Yes
No
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SURVEY RESULTS: Market Environment
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0% 5% 10% 15% 20% 25% 30
Financing: 90% LTV
Financing: 85% LTV
Financing: 80% LTV
Financing: 75% LTV
Financing: 70% LTVFinancing: 65% LTV
Financing: 60% LTV
Financing: 55% LTV
Financing: 50% LTV
100% Cash
How were most of your sale transactions in the
past 12 months completed?
sh or Seller financing is the only way to go
th some of the older properties that I
present.
ost deals are completed with cash.
e're only selling properties at bargainces and to buyers who have money at this
me.
0% 10% 20% 30%
< $250,000
$250,000 - $500,000
$500,000 - $1,000,000
1,000,000 - $2,000,000
2,000,000 - $5,000,000
,000,000 - $10,000,000
> $10,000,000
Value of most recent sales transactionI have investors that want to buy but Banks are
holding up the process when it comes to
Foreclosures.
The area where I reside has been very depresse
and the local and national banks will not even
look at any new deals and are failing to renew
many of the old loans. We have had many ban
failures in South Georgia and will probably seemore this year. The only deals we have closed
have been all cash or owner financing.
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SURVEY RESULTS: Market Environment
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0% 5% 10% 15% 20% 25% 30
National banks (Big four)
Regional banks
Local banks
Credit unions
Life insurance companies
REITs
Private investors
Public companies
all Business Administration
Other, please specify
Current sources of financing for commercial deals
nks can borrow money virtually for free and
nvest in T-Bills or other instruments and earn the
read without the risk of lending.
ncern is for small business and new business
owth; no one wants to take risk anymore so
siness owners need access to capital. That is very
ficult for the small business owner to be able to
cess capital funds. The capital funds only want to
big deals.
s virtually impossible to start a new project.oney is so tight that even the best projects are
ving a difficult time finding funds to start the
oject.
nding for B and C retail is practically non-existent.
vate lending needs to be promoted in order to
se the lending market.
National banks, who received large TARP funds
simply will not lend in secondary smaller markets.
The primary lenders outside of the major metro
areas are local banks. Due to their size they are
limited in transaction size making financing difficul
for medium to large projects.
Rates are excellent, which leads to easy to cover DC
requirements.
The rates that are available on the market today a
at historical low rates.
The system is clogged with property that needs to b
sold or refinanced and until this happens, we will n
have real recovery. Without obtainable and
workable financing we are kidding ourselves and
this shows since the recovery supposedly started
over a year ago.
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SURVEY RESULTS: Lending Environment
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67%
33%
Have you had a sales transaction fail during
the past 12 months due to lack of financing?
YesNo
43%
57%
Have you had a transaction fail during the
past 12 months due to appraisals?
Yes
No
I have been a Realtor/investor for 40+ years and
have NEVER had a problem getting a loan to
purchase investment real estate. Now it is a
problem, even though I have no blemishes on my
record. The banks say the regulators say I have too
much real estate, therefore I'm a risk.
It is extremely hard for people to borrow money.
Credit ratings and requirements are too stringent.They must be lowered, in order to for people to
begin investing and constructing real estate. Many
people are waiting for banks to loosen lending
requirements. New residential homes, multi-family
housing projects, and commercial construction for
small businesses would increase immediately.
Lenders are now asking for 25-35% down, and also
asking for 25 -35% IN WORKING CAPITAL.
Reduce equity required by small businesses to 15%
from current 30%.
The refinancing of CRE has to occur. At which level
of regulatory oversight is the question. Banks and
life Companies are the only viable source of debt.
The CMBS market is inconsistent and unpredictable
Not enough volume to support the maturing loans
that are coming to market. We need a stable CMBflow of business to deal with the CRE loans but who
will buy the bonds?
Appraisals need to be based on current NOI (Incom
basis) and not on current sales of same asset types
Unfortunately, distressed sales are used more by
commercial appraisers and this reduces values of
Good Income assets, in NON distressed sales.
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SURVEY RESULTS: Lending Environment
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0% 10% 20% 30% 40% 50% 60
More stringent than a year ago
Just as stringent as a year ago
s stringent than a year ago, but not near historical
averages
Not at all stringent and almost back to historical
averages
Do not know
Are loan underwriters / lending committees making financing decisions on commercial
properties with standards still as stringent as one year ago?
nks being over regulated is making our businessuch more difficult.
nks need to get lending again!!!
nks need to loosen up their LTV ratios, to help new
siness to get financing.
uity requirements for redevelopment of properties
e too stringent and onerous.
ss regulations but with proper guidelines. We
nt need more loans. Taxes need to be reduced to
mulate equity in the economy which promotes
owth. Restricting laws deter that.
move all bank regulatory rules and let the market
at on its own merits.
Remove regulations that are administered by publiagencies and provide added incentives to the priva
sector. Let the market establish supply/demand, no
the regulatory agencies. Eliminate uncertainty
regarding taxation issues, accounting controls, etc.
so that the private sector can plan investments
farther than 3-months to a year in advance. Get th
national debt under control by eliminating much of
the public sector and regulatory agencies.
The biggest problem is the Federal regulators. They
will not allow banks to take any risk at all. Until the
loosen up on the banks nothing will happen.
THE main issue is over regulation, especially on
healthy community banks.
Avg. Debt Service
Coverage Ratio = 1.3
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SURVEY RESULTS: Lending Environment
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50%50%
Have your clients failed to complete a re-
financing transaction during the past 12
months?
Yes
No
52%48%
With properties with re-financing issues, if
owners provided an existing/new property
lease with NOI at pre-2006 levels , did the
property still fail to secure re-financing?
Yes
No
44%
56%
If you answered Yes, the reason was
due to:
Appraisal /
Valuation
Internal
underwritin
requiremen
of lender
0% 5% 10% 15% 20% 25% 30
Increased 1% - 4%
Increased 5% - 9%
Increased 10% - 15%
No Change
Decreased 10% - 19%Decreased 20% - 24%
Decreased 25% - 29%
Decreased 30% - 34%
Decreased 35% - 39%
Decreased 40% - 49%
Decreased 50% - 75%
How did net operating income ($/SF) of sold/leased
properties change from the 2007.Q4 to 2011.Q4?
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SURVEY RESULTS: Lending Environment
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0% 5% 10% 15% 20% 25% 30
Reduced net operating income, property values, and
equity
A slow-down in the pooling and packaging of CMBS by
financial institutions
Regulatory uncertainty for financial institutions
New and proposed US legislative and regulatoryinitiatives
Inability of banks to dispose of distressed assets
European debt crisis
Other, please specify
The most relevant cause for lack of sufficient bank capital available for commercial lending
of the items in question 6 threaten the ability of
e economy to recover. In totality, the combined
fects of these regulations create consequences or
products that are unnecessarily harmful to an
propriate recovery. Additionally, the impact of
gulatory uncertainty absolutely discourages all
rties from moving forward. Regulatory
certainty, combined with recent regulations and
oposed regulations, are creating disincentives to
vest and in some cases a stranglehold on the verytities who can start to invest and make loans
ain.
edit Markets are complex. Best legislation is to
el the playing field and not favor one group of
ders/investors over the other. Mostly, it is the
eling of confidence in the future for lenders and
rrowers and there is a historic relationship
between stability of the rules and investment in
commercial real estate (or any other real estate for
that matter). If those in charge are clueless or pron
to experiment with systems history tells us always
fail, best go fishing for a while.
The worst possible thing that could be done would
be to incentivize investment by accelerating
depreciation. We tried that decades ago, and the
results were disastrous. Depreciation has a purposeto allow taxpayers to recognize the monetary losse
as they occur. When the purpose of depreciation is
changed, such as to encourage investment,
taxpayers make investments that are in their best
interest; however, these tax-shelter-induced
investments are not, collectively, in the best interes
of society.
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SURVEY RESULTS: Small Business Administration Loans
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36%
46%
18%
Have your clients used/plan to use the Small
Business Administration (SBA) commercial
refinance program?
Yes
No
N/A
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50
Did not know the program existed
rdensome application and reporting requirements
Due to past SBA experiences
Other, please specify
If you answered "No" to the previous question, why not?
[] Activity has increased
dramatically in the last 6 months,
mostly apartments and SBA, both
7A and 504 programs. Small Banksare increasing their activity in the
Bay Area.
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SURVEY RESULTS: Legislative/Regulatory Issues
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0% 20% 40% 60% 80
Decrease the flow of capital into U.S. real estate
e no effect on the flow of capital into U.S. real estate,ut change the way in which transactions or loans are
structured
ve no effect on the flow of capital into U.S. real estate
Increase the flow of capital into U.S. real estate
Impacts of new/proposed U.S. legislative and regulatory initiatives
ed to get the awareness out about the key policy
ues that impact the Commercial marketplace.
ed to address the need and approach to re-
iting a number of the commercial loans versus
t moving the obligation down the road through
tensions. We need to better understand what is
e current obligation and how much of that is
derwater and requires a fix.
nks do not want to lend. Banks are overly
rutinized by the Feds. Banks do not need to be
iled out with our money. SBA is the only game in
wn and should loosen up the current lending
actice and make it easier to obtain loans for small
siness. To the contrary, the current environment is
ainst small business, hence the lack of good jobs
d high unemployment.
Senator Dick Durbin needs to be aware of how the
Dodd-Frank Bill has made it very difficult for lendin
institutions to loan to willing buyers. The banks
have lots of cash but are not able to lend due to
borrowers needing to just through too many hoops
UntilCapitol Hills policy makers stop to consider
what their reforms legislation does to the small
business owner, the capital markets will remain
frozen as this type of legislation promotes
uncertainties in the way of tax allocation and futur
profits on and of the initial investment.
Any government action will NOT improve condition
Let the markets take care of themselves.
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SURVEY RESULTS: Legislative/Regulatory Issues
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The most important new/proposed regulations for
small business & commercial real estate lending
consistent regulatory guidance (Commercial loan workouts/extensions) 59%
sk retention (Dodd-Frank Act: banks that package commercial loans are required
keep 5% of the credit risk on their balance sheets)46%
ase accounting (FASB proposed new accounting rule that capitalizes real estate
ases onto company balance sheets) 41%
edit rating agency reform (Dodd Frank Act reforms would tighten regulations
verning the securitization process and strengthen investor protections)30%
asel III (Basel Committee on Banking Supervision announced new, higher capital
andards for banks to boost common equity requirements to 7% by 2019)27%
ark-to-market accounting (Proposal by the FASB to extend fair value requirements
at currently cover complex securities to loans on banks books)26%
olcker rule (Nonbank financial companies supervised by the Federal Reserve that
gage in proprietary tradingor acquire ownership in or sponsor a hedge fund or
ivate equity fundwould be subject to additional capital requirements and
uantitative limits as determined by the Fed and other banking agencies)
22%
egistration of investment advisors (SEC proposal to implement provisions in Dodd-
ank Act that would eliminate certain exemptions from the law while requiring
visors to real estate private equity funds and other private funds to register with
e SEC)
17%
TC derivatives reform (Establish federal regulation of over-the-counter (OTC)
erivatives bringing this unregulated market under federal regulation for the first
me)14%
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SURVEY RESULTS: Legislative/Regulatory Issues
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0% 5% 10% 15% 20% 25% 30
Credit union lending (Legislation introduced to raise
the member business lending cap from 12.25% to
27.5% of total assets for well-capitalized credit
unions)
Covered bonds (Legislation introduced to create a
US covered bond market)
Accelerated depreciation (Legislation introduced toincentivize equity investment in distressed CRE
properties by granting investors a one-time 50%
bonus depreciation)
Improved bank liquidity (e.g. Allow banks to
mortize losses attributable to CRE lending over a 7-
10 year period)
Extended/improved the SBAs new commercialrefinance program (Program provides SBA loan for
up to 40% appraised property value with no less
than 10% of remaining amount to be contributed
No policy action (Allow full private market
correction)
The most important proposed policy priority needed to improve commercial lending
conditions
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ow banks to foreclose on commercial property atrrent market value and write off losses.
nks which have increased credit score requirements
e going to have to accept lower scores in view of the
onomy over the past four years. Some good people
ve taken big hits, including many Realtors/investors.
d funds rate at 0% has made it easy for banks to invest,
her than lend, to make their margins. A government
ich is tightening policy across the board needs to
alize that the economy will be in restricted growth
ode due fully to the new policies. Especially when that
vernment ENCOURAGED the very policies it now wants
change.
n't understand why some banks only loan 70% on the
d and don't include the value of the buildings contents
en it's a commercial business such as a
r/restaurant.
t bankers to work with people instead of killing them
d making problems worse and causing significantgative ripple effect. They could work with people, loose
s themselves, save the debtors and most of their
ditors too if the banks would use a little compassion
d common sense. Only asking them to lighten up to
ere the bank itself stands to still make a profit by not
ing their debtors.
elieve the banks have to start lending again with fewer
trictions, and less government regulations and the
praisers be more realistic and more educated aboute CRE.
ersonally think that continuing to "milk" bad
mmercial loans and offering extensions and or
SURVEY RESULTS: Additional Comments
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workouts is the wrong thing to do...just to keep it out ofthe banks "bad loan portfolio" and out of the public eye
Such deals were not offered to many who lost their
homes and these commercial properties need to be
placed on the market and purchased by credit worthy
buyers!
My regional commercial bank is excessive and punitive
its requirement for its additional equity requirements fo
construction loans.
Revaluation of existing loans even when loans are not in
default requiring either additional collateral or greater
equity drains needed capital from businesses and
investors while not improving anything for the lender b
alleviation of assumed greater risk in the event of
lowered appraisals comforted by equity or collateral.
Select banks are lending on a very, very conservative
basis. Putting even the most qualified small business
owner's through hell to obtain loan commitments, ergo
for real estate or start-up loans, and hoping for"deflated" appraisals (relative to contract terms)to
require additional equity from sponsors.
The Banks are asking for fully executed Leases and the
financials of those Lessees prior to a loan for
construction. This used to be done with just LOIs. This
level of documentation from Lessees, prior to actual
construction is prohibitive. Also the CAP rates required
have been raised to levels that are not reachable in a
down market.
There is still a vast problem with all Lenders, especially
the "Big Four". Qualified Purchasers are constantly and
indirectly penalized. Un-Qualified persons are given an
Open Door for Loans.
ote: In April 2012, NAR invited a random sample of 32,459 REALTORS with an interest in commercial real estate to fill an on-line survey. A
al of 474 responses were received from 47 states, for an overall response rate of 1.46 percent.
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NATIONAL ASSOCIATION OF REALTORS
RESEARCH DIVISION
The Research Division of the NATIONAL ASSOCIATION of REALTORS
provides research products focused on commercial real estate
markets:
Commercial Real Estate Outlook, a quarterly report
forecasting commercial market fundamentals.
Commercial Real Estate Quarterly Market Survey, a
quarterly assessment of commercial leasing and sales
trends in REALTOR markets.
Commercial Member Profile, an annual survey detailing thbusiness and demographic characteristics of commercial
members.
Additionally, NAR Research examines how changes in the economy
affect the commercial real estate business, and evaluates regulatory
and legislative policy proposals for their impact on REALTORS, their
clients and Americas property owners.
If you have questions or comments regarding this report or any othercommercial real estate research, contact George Ratiu, Manager,
Quantitative & Commercial Research, at [email protected].
To find out about other products from NARs Research Division, visit
www.REALTOR.org/research-and-statistics.