As for reaction from the investment community, Tognarelli prefers to say that investors are being "more cautious" rather than "less aggressive."
The main question, though, is how current conditions are affecting Heitman's stance toward its own investment decisions. They are and they aren't, Tognarelli says. "Regardless of market conditions, you have to assess opportunity. For us, we've not paused in any sense, although we are cautions and watching."
New Mortgage Realities
Although everyone in the game can be said to be watching, too, not everyone wants their name or their firm's name anywhere close to the market churn. That doesn't mean they won't talk about it -- they will, just not for attribution.
A mortgage broker active across the country says that "the CMBS [commercial mortgage-backed securities] market on the fixed-rate side is shut down." Sort of, that is. "There are guys doing fixed-rate deals at pretty predatory levels." However, he adds, "most deals that already are under application or in a commit are being honored" -- with some maneuvering. For new deals, though, spreads being quoted are "very wide." And no one is biting.
However, there's still what might be called the old-fashioned loan business -- that is, unsecuritized debt, typically involving insurance companies. "That market," says this mortgage broker, "is still fine. There are not any liquidity issues in that market yet." But he adds, "If you take a snapshot going forward, that's going to change."
Dig deeper, however, and he acknowledges that even that sector is "a little slower" and that lenders are being "much more selective." They also are extracting wider spreads from borrowers for smaller loan valuations. Borrowers are faced with lower loan-to-value ratios and much higher capital costs for mezzanine debt, which is now a far larger piece of the deal puzzle that buyers have to put together.
Many of the high-profile transactions -- and, of course, other building sales -- "were bought with negative debt service ratios," notes the broker. Thus, "the lender was looking at [a few prior years of growth] to justify their loan amounts."
Peter Slatin
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