"Securitized Debt: Hot Source of Capital" CONTINUED...
The loans range from $1 million to more than $10 million, making conduits especially suited for owners of small shopping centers, experts say. In order to spread risk and maintain diversity, individual loans usually do not exceed 10% of the value of a pool, and pools include a variety of property types.
In 1993, conduits accounted for 9% of activity in the commercial-loan-backed securitized debt market, and this year their share is expected to grow to 20% to 25%, or $6 billion to $8 billion in volume, Leventhal's Mr. Kane said. Their market share is expected to swell to as much as 50% in 1996, he said.
1993 Non-RTC Securitized Debt Deals
Retail Leads Market
(# of Transactions)
Last year, Liberty completed an $86 million loan offering based on a pool of 12 loans on properties in three states, including four community centers and two factory outlet centers. The company originated, underwrote and funded the loans on a fixed-rate basis with a 15-year term and a 25-year amortization.
At press time, company officials were assembling a second pool --- expected to be valued at about $150 million --- that will represent loans on about 25 properties nationwide, more than half of which will be shopping centers.
The shopping centers usually are strips anchored by supermarkets or drugstores, factory outlet centers and, in some cases, unanchored strips. In all, Liberty is expected to fund more than $300 million in commercial real estate loans this year, officials said.
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Securitized debt financing and REITs have become potent sources of capital for shopping center owners, industry experts say.
One of the borrowers in Liberty's $86 million pool was Wall Street Property Co., a La Jolla, CA-based community center developer. The developer turned to Liberty in early 1993 after other lenders rejected its requests for permanent financing for Gateway at Donner Pass, a community center in Truckee, CA. The firm developed the center in 1990, selling off pads to Payless Drug Stores and Safeway to lower its construction loan, officials said.
Although the center was fully leased when Wall Street Property officials sought permanent financing, life insurance company official turned down the request because the anchors owned their pads, and the center is located in a remote ski area in the high Sierras, said Michael R. Perry, a partner in the firm. Other conventional lenders were out of the market, he added.
Liberty lent the developer $4.9 million. The terms of the loan are similar to those of conventional loans, but the approval process was somewhat time consuming because of the scrutiny of the two rating agencies involved, Mr. Perry said. In addition, the company had to pay fees to multiple parties involved in putting together the transaction, he said.
"There is really no material difference between this loan and any other loan that we have...[The fees are] probably the only part of these deals that set them apart from [loans by] life companies," Mr. Perry said.
"I would imagine that as more and more of these pools are done and all the parties get versed in the procedure, the costs will go down," he said. Apparently, that process is under way.
Earlier this year, Salomon Brothers Inc., a New-York-based investment bank, announced the formation of a commercial-mortgage conduit program for retail and industrial properties that is
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expected to lend at least $500 million per year. It's a joint venture between Salomon Brothers Realty Corp., a subsidiary, and RFG Financial Inc., a commercial mortgage bank.
Salomon officials said they prefer anchored projects with credit tenants but will consider unanchored projects in prime retail locations. Projects should be at least 85% occupied, they said. The program is offering non-recourse loans ranging in size from $3 million to $15 million and carrying 25-year amortizations. Loan terms are from five years to ten years, officials said.
Also this year, Cushman & Wakefield, a New York-based international real estate services firm, in partnership with Fidelity Bond & Mortgage Co, a Blue Bell, PA-based national mortgage banking operation, unveiled a conduit program for retail, industrial, office and other types of commercial properties.
The program, called the National Mortgage Conduit Program, offers non-recourse loans from $1 million to $12 million at fixed rates for terms of seven years, ten years, and 25 years, officials said.
In addition, Milestone Mortgage Corp. of Boca Raton, FL, is expected to lend as much as $100 million this year, virtually all of it going to strip center owners, said Stephen D. Williams, president of Milestone. The firm does some conduit work as well as investment management.
Milestone officials target shopping centers that are at least 25% occupied by anchors, which usually are supermarkets or drugstores. The properties generally are at least 90% occupied, officials said. The company typically originates loans ranging from $1 million to $10 million. Its parent, Milestone Properties, is a public firm that owns shopping centers, primarily strips.
"For the most part, there are not a whole lot of other opportunities for the niche that we focus on: people in secondary-market locations who may have shorter-term anchor leases," Mr. Williams explained. "[Securitized debt financing] is really the only game in town for certain classes of borrowers." |