Two big local real estate buyers are getting financed like it’s 2007.
REVA Management Advisors and Lingerfelt Companies, two office real estate developers, have borrowed a total of $145 million through commercial mortgage-backed security loans this year to buy office properties on the East Coast.
Stevens Sadler, a principal at REVA, said he’s secured $45 million in CMBS loans in 2012.
“That’s the most we’ve been able to close since 2007,” he said. “It has definitely picked up.”
Nationally, CMBS loans are projected to see a 36 percent year-over-year increase. As more lending becomes available, the volume of deals could rise in the Richmond market.
“Office buyers are starting to look in secondary markets such as Richmond again,” said Eric Robison, a broker with Cushman & Wakefield | Thalhimer. “We expect the rise in CMBS loans to push up property values and bring more buyers into the market.”
In a commercial mortgage-backed security, the debt from a bank’s loan to a commercial property owner is bundled with other loans and sold to investors as securities.
Andy Little, a commercial mortgage banker and principal at John B. Levy & Co., said CMBS loans are important for markets such as Richmond because the lenders are more likely to lend in smaller markets. Big banks and lenders have been wary of lending to small markets in the past, preferring to stay in large citys such as Boston and New York.
“With CMBS, they are sort of less discriminating,” he said. “As long as a property has good cash flow, the lenders will go into smaller markets. So the pickup in CMBS is actually very important to the Richmond office and warehouse market, and for hotels.”
REVA, an office properties holding and management firm with roughly 2.2 million square feet valued at about $250 million, added about 520,000 square feet of office space in the past year, using the loans to buy offices in Greensboro, N.C., Charleston, S.C., and Orlando, Sadler said.
The company has another 145,000 square feet under contract in Greensboro and a 45,000-square-foot building under contract in Kansas City, Mo.
Lingerfelt Companies has closed about $100 million in CMBS loans this year, company head Alan Lingerfelt said.
‘They are difficult to get, and there is a lot of paperwork that goes into it, but we’ve been able to do three transactions this year,” Lingerfelt said. “They are the first since 2008.”
When the market went bust in 2008, the CMBS credit market froze, putting the kibosh on what had been a popular way of financing big-dollar real estate deals in the boom years.
Joe McBride, an analyst at the real estate tracking firm Trepp, said in an email to BizSense that CMBS loans have made a comeback in the second half of 2012.
“CMBS issuance has really picked up since Labor Day. 2012 volume should be around $40 billion, on the upper end of initial expectations,” he said. “New issue deals are pricing at spreads not seen since before the recession.”
That’s a big jump from last year, when there were $33 billion in CMBS loans, and an enormous leap from the bottom of the market in 2009, when it was a $4 billion market.
Still, according to Little, the market is a far cry from the heady days of 2007, when the market peaked at $228 billion.
“It’s pretty astounding. It’s a huge increase over last year and the year before,” he said. “But when you compare it to 2007 at its peak, it’s still not that great.”
Lingerfelt has recently become one of the most active players in the local office real estate market. The company has amassed a 2.6 million-square-foot portfolio since making a huge splash in 2011, buying up 900,000 square feet of office real estate in and around Innsbrook for $100 million.
Since then, Lingerfelt has announced two other deals in Richmond and one in Tennessee.