Loan-Sales Market Takes Off
June 9, 2010
Commercial Real Estate Direct Staff Report
The loan-sales market is booming, with some $2.6 billion of loans on the market for sale through the end of next month, excluding the $3.2 billion-plus that the FDIC is marketing through its structured offerings.
The surge of offerings is an indication that prospective sellers don’t expect values to climb appreciably anytime soon and that investors have lowered their yield expectations.
“The bid-ask gap is tightening,” said one loan investor. While the gap might be tightening, sellers and buyers are often still far apart on pricing expectations. So not all loans that are offered end up selling. But the sudden large volume of loans in the market indicates that sellers and investors have moved toward each other in price.
In addition, some recent big-ticket loan deals has provided proof to prospective sellers that investor capital is eager to get deployed. Starwood Property Trust, for instance, in February paid a premium for a $503 million portfolio of performing commercial mortgages.
That transaction might have played a role in convincing MetLife to offer a $196.5 million portfolio of commercial mortgages through CB Richard Ellis. The portfolio has a weighted average maturity of 20 months and weighted average coupon of 6.63 percent.
Excluding the FDIC, which is selling commercial real estate loans nearly exclusively through its structured offerings, CMBS special servicers are offering the biggest chunk of loans. And they’ll continue to be the big sellers simply because most are working at capacity, while the volume of loan transfers into special servicing continues unabated.
But some banks are starting to dip their toes in the water. While investors had long expected banks to be big sellers, few pulled the trigger simply because of their inability to swallow the potential losses resulting from any sales. But continued relatively low interest rates have permitted many banks to shore up their capital levels, allowing some to aggressively write down some of their loans. Banks are also eager to clean up their balance sheets in order to pursue the acquisition of failed banks.
The FDIC will soon formally launch marketing for a stake in a $2 billion portfolio of commercial real estate and development loans. The agency’s adviser, Barclays Capital, is also gearing up to sell a stake in a $225 million portfolio of acquisition, development and construction, or ADC loans.
Another two portfolios, totaling roughly $1 billion, will soon be offered through Milestone Advisors and HSBC, respectively. Outside of those two, the FDIC is shooting to complete sales before the end of June. As in its previous structured sales, the agency will sell only a stake in the portfolios while providing low-cost financing. That allows it to benefit if any assets it sells improve in value.
Meanwhile, no fewer than three special servicers are offering distressed loans.
LNR Partners, the most-active CMBS special servicer, last week formally launched a $1 billion offering of small-balance loans. The offering is being orchestrated by Eastdil Secured, which split the portfolio into 25 pools.
And CWCapital last week put a $291.3 million portfolio of loans up for sale through Mission Capital Advisors.
Mission Capital is separately offering a $25 million nonperforming loan on a mixed-use property in Palm Springs, Fla., on behalf of a special servicer, believed to be LNR Partners.
Another special servicer, ING Clarion, is among those offering loans through an auction of nearly $200 million of loans orchestrated by a venture of Jones Lang LaSalle and Real Estate Disposition this week.
Banks that are plying the secondary loan-sales market include BankAtlantic, which is offering $187.7 million of distressed loans on Florida properties, and Ocean Bank, which is offering $400 million. Both portfolios are being offered through Carlton Group. And to spur investor interest, BankAtlantic would provide either recourse or non-recourse financing to buyers of certain loans it is selling.
Meanwhile, Mission Capital is offering a $500 million portfolio of mixed-quality loans and foreclosed real estate on a mix of commercial and residential real estate, including land. The seller is believed to be M&I Bank. Mission Capital is also offering a $22.9 million portfolio of mixed-quality loans on commercial and residential properties most of which are in California, New York and New Jersey offered on behalf of a foreign bank. And DebtX is offering a portfolio of 19 distressed loans with a balance of $94 million.
