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- Sep 25, 2007
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Hi all,
An article from today`s edition of The Globe and Mail (Report on Business - Property Report). Excerpts:
Finding financing for commercial real estate seems to have become much like a game of musical chairs: When the music stops, there just are not enough seats to go around.
With commercial mortgage-backed securities no longer available, the supply of mortgage money has dropped by about a third from last year, according to industry sources. Construction financing has all but dried up, experts say. And to complicate the situation even further, Canada`s biggest pension funds are vying for what little money there is by mortgaging properties they bought for cash to restore balance to their asset-allocation demands.
"Financing is very much a situation in play right now," said Milton Lamb, senior vice-president, national investment team, at Colliers International in Toronto.
What led to today`s situation has been well covered. Institutions around the world made mortgage loans at very low interest rates and with little equity and few conditions. Wall Street then packaged them in bundles and sold shares in those packages to investors.
When borrowers found they could not make payments, the whole scheme began to crumble. While commercial mortgage-backed securities never presented the danger those residential mortgages did, the entire approach to financing developed such a disastrous reputation that they almost instantly disappeared.
At the same time, banks and other lenders, facing enormous losses from their investments in mortgage-backed securities, either stopped lending on commercial real estate entirely or returned to traditional balance sheet lending. As they did so, they slashed the upper limits on loans they were willing to make, demanded far greater equity and imposed stringent conditions to reduce their risk. The result is today`s situation, where demand far outstrips supply.
Real estate financing falls into three distinct categories: construction financing, permanent financing once construction is completed and the refinancing of existing projects as mortgages come up for renewal.
Construction financing has been hardest hit, said Andrew Odd, vice-president at CBRE Capital Markets in Toronto. "There is so little construction financing available that, if a builder can put a hold on a project or cancel it, he will," Mr. Odd said.
"We are actually in a much better condition than most other countries," Mr. Lamb said. "But this is an industry where things move slowly. There is still time for property owners to make changes internally, which will make their situation much more attractive to lenders."
http://www.theglobeandmail.com/servlet/sto...Story/Business/
Keith
An article from today`s edition of The Globe and Mail (Report on Business - Property Report). Excerpts:
Finding financing for commercial real estate seems to have become much like a game of musical chairs: When the music stops, there just are not enough seats to go around.
With commercial mortgage-backed securities no longer available, the supply of mortgage money has dropped by about a third from last year, according to industry sources. Construction financing has all but dried up, experts say. And to complicate the situation even further, Canada`s biggest pension funds are vying for what little money there is by mortgaging properties they bought for cash to restore balance to their asset-allocation demands.
"Financing is very much a situation in play right now," said Milton Lamb, senior vice-president, national investment team, at Colliers International in Toronto.
What led to today`s situation has been well covered. Institutions around the world made mortgage loans at very low interest rates and with little equity and few conditions. Wall Street then packaged them in bundles and sold shares in those packages to investors.
When borrowers found they could not make payments, the whole scheme began to crumble. While commercial mortgage-backed securities never presented the danger those residential mortgages did, the entire approach to financing developed such a disastrous reputation that they almost instantly disappeared.
At the same time, banks and other lenders, facing enormous losses from their investments in mortgage-backed securities, either stopped lending on commercial real estate entirely or returned to traditional balance sheet lending. As they did so, they slashed the upper limits on loans they were willing to make, demanded far greater equity and imposed stringent conditions to reduce their risk. The result is today`s situation, where demand far outstrips supply.
Real estate financing falls into three distinct categories: construction financing, permanent financing once construction is completed and the refinancing of existing projects as mortgages come up for renewal.
Construction financing has been hardest hit, said Andrew Odd, vice-president at CBRE Capital Markets in Toronto. "There is so little construction financing available that, if a builder can put a hold on a project or cancel it, he will," Mr. Odd said.
"We are actually in a much better condition than most other countries," Mr. Lamb said. "But this is an industry where things move slowly. There is still time for property owners to make changes internally, which will make their situation much more attractive to lenders."
http://www.theglobeandmail.com/servlet/sto...Story/Business/
Keith