Commercial real estate lending market loosening up

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Recent headlines about tighter residential mortgage and lending requirements might suggest that commercial real estate lending is in the same boat.

That’s just not the case, says Terrix Financial Principal Brandon Rogers.

“It’s actually loosening quite a bit,” the Denver-based lender said.

Rogers said the shift has occurred not only among banks and commercial lenders but for large commercial-backed security “conduit” lenders who typically want minimum $15-million deals.

“They’ve now lowered that to $5 million. In this market, they’re easier to find,” he said, adding that lower threshold could fall even lower as investors scour the landscape for fundable real estate.

Especially in view of the waning bond market — a favored investment for cash-rich insurance companies and Wall Street during the past year — now offering skimpy returns, commercial real estate is looking good again.

Terrix Financial works with mostly with institutional investors, including insurance companies, which are “in,” looking for good projects to fund.

Signs of aggressive deal chasing are everywhere.

“One insurer we work with had $1 billion to lend, but by September that was already gone,” Rogers said.

The over-leveraged deals of pre-2008 are gone, however. Today the most desirable candidates are fully leveraged at 65 to 70 percent and qualify for 5 percent down.

“There’s even five-year financing available in the fours with no personal guaranty required,” he said, adding that applies only if very stringent conditions are met.

And a building’s class, age and glamour level — be it an A, B or C property — is less important than its loan-to-value ratio and its occupancy levels. Institutional lenders are also looking to invest in properties with occupancies at or about 90 percent of their surrounding submarket’s peers.

Asked how much business Terrix is currently doing in Colorado Springs, Rogers had to think hard.

“We haven’t been doing much down there, but we’d like to. You could even call it ‘begging.’ One of our people is working on funding a new hotel in the Springs,” he said.

Office leasing, sales off

The third quarter 2010 Turner Commercial Research report on the Colorado Springs commercial real estate market was published just before Columbus Day.

It delivered some good news: The local office leasing world is no longer flat.

Empty offices in the Pikes Peak region’s 365 office buildings were fewer — down from a 15.6 percent vacancy rate in second quarter to 14.3 percent for the quarter ending September 30.

Credit for that drop was due in large part to a 73,000-square-foot lease signed by Everest College and to El Paso County’s purchase of 289,000 square feet in the former Intel complex.

“This reasonable amount of leasing…portends a long-awaited positive absorption year for the office market,” Turner said in his report.

Local landlords were also able to hang on to a $10.81 per-square-foot average rent, down slightly from $10.95 last quarter.

Class A property owners — those with newer and more upscale buildings to fill — saw rents continue to decline from the heights of 2008 to $13.72 per square foot. The average vacancy rate was unchanged from second quarter’s 20.3 percent.

For those with buildings to sell, Turner’s data doesn’t offer any rainbows.

The number of buildings sold during third quarter declined on a year-over-year basis.

A total of 33 office properties have sold so far in 2010 for an average of $95.56 per square foot. That’s down 22.4 percent from 2009’s average of $123.10.

And most of those buildings purchased were bought by local owner-users rather than by outside investors.

Overall the local office market did hold its own, especially when compared to this week’s national office market report from Grubb & Ellis economist Bob Bach.

“The softening cycle has ended, but a recovery cycle worthy of the name is still on the drawing board,” he said in a third quarter office market overview.

Nationally the office vacancy rate has remained at or around 17.8 percent since first quarter. Fortunately sublease space, usually abandoned by companies that have downsized or gone out of business, declined at a good clip to end the third quarter down 23 percent from the peak exactly one year ago.

An Oct. 5 story in the Wall Street Journal echoed Bach’s overview.

“In a sign that the country’s commercial real-estate market is finally turning the corner, new statistics show that office rents that have been falling throughout the economic downturn are beginning to stabilize,” the Journal reported.

Becky Hurley may be contacted at (719) 329-5235 or email at becky.hurley@csbj.com. Friend her on Facebook.