US commercial real estate lending reemerging-Citigroup Inc.
By Al Yoon
NEW YORK, Aug 14 (Reuters) – Competition in commercial real estate lending is reemerging on the U.S. west coast, possibly marking an early sign that the financing drought that has wreaked havoc with the sector is easing, Citigroup Inc analysts said on Friday.
The lack of financing has been a chief cause of falling values on office, retail and apartment buildings since 2007, forcing sales at depressed prices. To avoid that, lenders have been busy extending or renegotiating loans, aiming to mitigate investor losses.
Tight credit has exacerbated the effect of the U.S. recession, which has increased vacancies and reduced rents to a point where revenue is falling short of debt payments.
But recent signs of "aggressive" competition to fund office properties, including from insurance companies and foreign banks, mean borrowers could find it tougher to seek breaks on existing loans, the analysts, led by Darrell Wheeler, said in a research note. With more access to funding, they argued, prices would be buoyed, making foreclosures viable alternatives.
The analysts did not specify what banks or insurers were competing to lend on the California properties.
Maguire Properties Inc (MPG.N), one of the largest commercial landlords in Southern California, on Monday was the latest to voluntarily declare it would default, in a move that Citibank said may be an attempt to secure easier loan terms.
Other financing alternatives for commercial property are also in the works, including securities sales made possible by a Federal Reserve lending program, Wheeler said. Opportunity funds are now in position to buy real estate assets without debt, he added.
"These disposition options would not have existed just two months back, so market conditions are changing very quickly," Wheeler said.
Real estate companies, including Simon Property Group Inc (SPG.N), Mack-Cali Realty Corp (CLI.N) and Macquarie Group have also raised unsecured debt at "reasonable" yields, he said. Federal Realty Investment Trust (FRT.N) raised money with unsecured debt, common stock and a loan, he added.
Maguire, which may be motivated to maintain control of its "class A" office buildings, may end up raising equity to exchange for lower interest rates on the loans, the analysts said. A liquidation of assets, which would create losses for bondholders, is unlikely, they said.
With increased financing, "valuations for these assets should quickly recover if the economy is recovering, and we now expect the number of voluntary defaults will start to drop off," they said.
Overall delinquencies will likely continue rising for the near term, however, according to Citigroup. (Editing by Padraic Cassidy)