JLL Commercial Real Estate Report: "It's a Great Time to Be a Borrower"
Jones Lang LaSalle (2/8/2012)

Jones Lang LaSalle's Tom Fish dissects the market financing requirements borrowers have in today's lending environment.

A new proprietary survey defines the likely universe of capital available for commercial real estate lending in 2012. Conducted by Jones Lang LaSalle (JLL) and Penton Media Research, it compiled direct feedback from 186 borrowers and 136 lenders who together comprise a median $73.3 million in commercial real estate asset value. Specifically, the "2012 Borrower Sentiment" report details the borrowers' sentiments for 2012 funding aims. In the last 12 months, these respondents borrowed a median $21.1 million for commercial real estate ventures.

While borrowers used to bemoan the slow loan closing speed and the post-closing service process, "both areas have improved as of late," shared Tom Melody, co-head and executive managing director of JLL's real estate investment banking business. "We anticipate that improvement will continue throughout the year. It is a great time to be a borrower."

It "makes sense" that a majority of borrowers still need more capital lending in 2012, added Tom Fish, co-head and executive managing director of JLL's real estate investment banking business, noting there is $415 billion of mortgage maturities on the horizon in 2012 alone "and opportunistic plays in the market." Even with the existing global economic concerns, he predicts debt financing "will remain very strong in the core space from life companies and domestic banks, and we expect the CMBS market to continue to regain footing in 2012."

Here are some report highlights:

Regarding financing requirements, the survey found that in 2012, "debt in all forms, deleveraging, bank stability and currency movements will dominate the global financial picture." Domestic borrowers indicated the majority of their 2011 financing needs (51 percent) were used for refinancing, followed by 42 percent for financing acquisitions where opportunistic buys existed. "Contrary to typical wisdom, a large portion of borrowers' funding in the last year went to new development (24 percent)," said the report .

The market is expecting rates to remain low during 2012 with generally favorable commercial loan pricing, said Melody. "We're at an absolute 25-year low for fixed rate loans on the best, low leveraged, quality assets. Borrowers with core, well-located properties will have a lot of competition and bidding wars from lenders willing to be aggressive on their pricing even though absolute rates are low given the spreads to those benchmark interest rates are still extremely attractive."