The once-vital, now-dormant commercial mortgage-backed securities (CMBS) market took another small symbolic step toward reinvigoration last week, when Keystone Property Group completed a $53.5 million refinancing for Keystone Summit Corporate Park in North Pittsburgh, Pa.
The transaction constituted the first loan in the U.S. to be originated and closed under the second generation of CMBS for a multi-borrower securitization, according to Keystone. Furthermore, for this Class A corporate campus totaling 704,474 square feet, the dealmaking parameters reportedly resembled those last seen during the glory days of 2007.
‘The capital structure we were able to obtain was similar to what was available in the market prior to the credit crisis – the actual closing of which is concrete evidence of a dramatic improvement in the availability of capital in the marketplace,’ stated Matthew Pestronk, managing director of Ackman-Ziff, which arranged the financing.
Pestronk added that Ackman-Ziff ‘candidly believe[s] the economics of this deal were the most aggressive’ seen since 2007. Pension funds, life insurance companies, private equity funds, and domestic and foreign banks alike all competed to finance the property.
Of course, the successful refinance of a single asset does not spell immediate recovery, and very few of the scores of other office properties across the U.S. will be able to benefit from the tenancy and property attributes that enabled the Keystone Summit Corporate Park to access the CMBS market.
For certain other commercial properties in need of refinancing, however, another form of assistance may be on the way.
Last week, President Obama introduced a series of small-business economic incentives, including expanding the Small Business Administration's (SBA) 504 program, which provides guarantees on loans for qualifying commercial real estate properties.
Under the proposal, SBA 504 loans would be temporarily extended to include refinances on performing owner-occupied commercial mortgages – both existing 504 loans and conventional CRE loans. (Currently, the program includes only new development or construction.)
Specifically, lenders refinancing mortgages for existing customers would lend up to 70% of value, and the SBA would boost the total leverage to up to 90%. For new refinancing projects, the SBA would provide up to 40% of property value. Refinances would carry a 10-year or 20-year term, and lenders would be required to write down or subordinate any debt in excess of the refinancing limits. (Click here for the program's fact sheet.)
In all, the proposal would help refinance up to $18.7 billion each year in commercial properties that could otherwise be foreclosed and liquidated, according to the White House.Â
Although the program would be funded through a new fee for refinancing projects and would not require credit subsidy appropriations, its road to final approval and implementation remains rocky.
Obama's small-business initiatives – which also included raising the limit on controversial SBA Express loans that provide capital to small businesses – were met with criticism from members of Congress, including Rep. Nydia Velazquez, D-N.Y., the Democratic chair of the House Small Business Committee.
‘The SBA's Certified Development Company initiative is intended to promote job growth and economic development,’ Velazquez said in a statement. ‘The refinancing of commercial real estate debt does not create jobs and, in fact, may dilute the program, drawing resources away from projects that do have job-creation potential.’
Despite its less than enthusiastic reception in Congress, Obama's 504 proposal was praised elsewhere for its promised role in both aiding small businesses and relieving small banks of some of their onerous CRE debt burden.
Steven Roth, executive president at Grubb & Ellis, told the New York Times that many small-business owners face a ‘potentially crippling’ upcoming balloon payment. This payment, of course, cannot be neatly refinanced, as was the norm during better lending times.
‘Banks' ability to provide lending to the marketplace is very constricted,’ Roth pointed out. ‘Anything that provides liquidity in the banking sector, especially in today's environment, is a positive thing.’