Lending by financial institutions in the US fell by roughly $15 billion between 2007 and 2008 – equivalent to a 30 percent drop in originations.
Research by Cushman & Wakefield Sonnenblick Goldman, the real estate financial services firm, reveals that lending among the most active 25 organisations in the US fell significantly in 2008, compared to pre-credit crisis levels.
As a result, non-traditional lenders moved into the void that was left, with life insurance companies becoming an active participant in providing real estate financing, along with federal agencies, regional and offshore banks and private funds.
CWSG said in its latest capital markets report that of the 10 most active insurance company lenders in the US, only TIAA-CREF and PacLife increased originations in 2008 compared to 2007.
The firm added though that, based on anecdotal feedback, originations will be down again in 2009 compared to 2008 – possibly by as much as 15 percent to 20 percent. Lenders though will be concentrating available capital on existing clients with “much of [the 2009] origination being extensions of existing loans.
New debt financing is extremely difficult to find in the current market, with many lenders having withdrawn wholesale from the business or focusing capital on existing customers only. Those that are underwriting new loans are typically asking for recourse, lower loan-to-value ratios and debt yields of around 15 percent. Deals of more than $100 million are extremely difficult to finance with a sole lender.
The CWSG report said recent fixed rate deals closed by life companies for a retail and office portfolio included loan-to-values of no more than 55 percent and involved 25-year amortisations, with the retail transaction requiring 20 percent recourse. The interest rates were 7.25 percent and 6.87 percent for the retail and office deals respectively.