About 3,000 commercial real estate lenders and mortgage bankers met last week in California to talk about lending goals and programs for 2011.
The overall mood was upbeat considering the whipping commercial real estate has taken over the past few years.
The plight of the former Mortgage Bankers Association headquarters building in Washington illustrates what has happened.
The association bought the building in 2008 for $79.32 million. At the time, it seemed like a bargain because the building was new and cost the seller $91 million to build.
As the market tanked late in 2008 and then flat-lined into early 2010, the mortgage bankers group sold the building a year ago for $41.25 million, taking a huge loss.
The buyer — CoStar Group, a commercial real estate information firm — sold the building a few weeks ago to a German Investment group for $101 million.
The most significant change during the three-year period was the market's perception of risk, and the volatile changes are typical of what many commercial real estate lenders went through.
Now lenders are getting a little more comfortable with risk and willing to lend a little more aggressively than they were during the past three years.
Although the mood is upbeat, delinquencies for a certain sector of commercial mortgages reached their highest point on record last month, according to Trepp LLC, the New York-based provider of commercial mortgage information.
Trepp indicates that 9.34 percent of loans that were bundled together and sold as commercial mortgage-backed securities are now delinquent. Those loans, which boast the worst delinquencies and losses in the commercial mortgage space, also offer the most hope for the industry.
In fact, the euphoria that was evident at the conference last week could be because of surging employment in commercial real estate finance. About 25 groups are now ready to originate new loans that will be sold as commercial mortgage-backed securities.
These new loans don't have the stigma that the old massively delinquent loans had, and many buyers of these bonds would like to think that "this time it's going to be different."
The truth is the only difference at this stage of the game is that although the underwriting model is the same, it is not being bent and tortured like it was in 2005 and 2006.
If there are 25 finance groups creating commercial mortgage-backed loans, it will not be long before one of two things happens: some of these groups may go out of business for lack of product, and companies may start bending the rules so that they can stay in business.
So far, the onslaught of new competition for these commercial loans has been more bark than bite.
Life insurance companies, the only commercial mortgage providers that grew their portfolios in 2010, are not feeling too much heated competition.
Lower pricing and higher proceeds were the major reasons borrowers used commercial mortgage-backed securities in the past.
Today, borrowers can obtain more proceeds and lower pricing from life insurance companies on most solid commercial real estate loans.
Rates for 5- and 10-year mortgages range from 5 percent to 6 percent, with commercial mortgage-backed loans pricing 0.15 percent to 0.5 percent higher, depending on leverage, according to the John B. Levy & Co. National Mortgage Survey.
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