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| Balance-sheet loans
back in business |
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There is a new loan; well it’s actually
an old one that has been buzzing in the business world.
The balance-sheet loan will provide financial assistance
to businesses that do not need just a basic loan.
Christine Haughney, columnist for The Wall Street Journal,
explains in her August 2, 2006 article, “Balance-Sheet
Loans Back in Vogue,” that these balance-sheet loans
are back in business.
Developers have been looking to personal bankers in the
event that their project runs into trouble. As a result,
developers are drawn to balance-sheet loans, which are
loans that lenders hold
on their mortgages.
Balance-sheet loans lost popularity after the 1980s real-estate
recession, “when developers defaulted on mortgages
and banks were stuck with half-built properties on their
books.
As a result, banks began to sell off their commercial
loans to Wall Street, which would then sell them as securities
to big investors.
“Now, however, some developers say they are willing
to pay a higher interest rate -- typically 1 to 1.5 percentage
points higher -- so the bank doesn't securitize their
loan.”
Real estate borrowers are beginning to realize the value
of having a friendship with their broker, rather than
dealing with merciless, nameless agencies.
“‘There will always be a need for balance-sheet
loans because there will be situations that don't always
fit into a box,’ says Craig Wood, president of New
York development company Cape Advisors Inc.”
Wood has a $1 billion real estate portfolio in the New
York area. “His firm, which has used commercial-mortgage-backed-securities
loans in the past, chose balance-sheet loans for a New
Jersey hotel-development project and a Manhattan office
building.”
Developers worry that if they have difficulties, for whatever
reason, paying their CMBS loans, they will be forced to
resolve their problem with a third-party agency.
"Our clients are saying to us that in the event of
an economic change, they like the idea of being with a
relationship lender, somebody they can talk [to] and discuss
their transaction because you get a decision from that
guy," said Tony Campbell, chief executive of the
North American division for Anglo Irish Bank.
“‘Our balance-sheet appetite has increased
in the last several years,’ says Randy Reiff, Bear
Stearns' co-head of the global commercial mortgage-backed
securities group, which holds some loans on its books.
‘The environment in general has become so competitive
that I need to be flexible.’"
These balance-loans offer the flexibility and personal
attention, modern businesses are looking for. But these
businesses have to be careful not to default
on mortgages again.
“Lenders acknowledge they must be careful not to
repeat the mistakes of their predecessors who have been
stuck with abandoned properties.” |
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