Banks' Wait-and-See Approach Boosts Market for Non-Traditional Real Estate Financing, Expert From Haverford Capital Says.

Business Editors

LOS ANGELES--(BUSINESS WIRE)--May 29, 2001

Traditional lenders have sharply reduced financing for new development as a result of the nation's economic slowdown, creating greater opportunities for alternative or secondary capital providers, according to David B. Blenko, president and chief executive officer of Haverford Capital, an equity and mezzanine financing source for real estate developers and investors.

"Most banks are holding the reigns tightly right now, waiting to see which way the markets will turn," Blenko observed. "Their conservative approach has increased the demand for short-term mezzanine debt and bridge loans, which many owners prefer in lieu of contributing more equity."

As loan-to-value (LTV) ratios drop -- to as low as 60-65 percent on office deals, for instance -- mezzanine financing is a critical component of many new projects. Blenko noted that while banks generally are avoiding speculative commercial development, some less volatile product types such as multifamily housing and industrial remain attractive.

Additionally, lenders are placing more emphasis on the strength and reputation of owners and developers than on collateral value.

"Strong principals who have a high level of market knowledge and a wide range of local contacts often can weather the toughest economic storm," added Blenko.

"Good leadership has always driven our lending decisions. In the past year we provided mezzanine financing for Overton Moore Properties' 170,000-square-foot office development near Los Angeles International Airport and a mixed-use project in Santa Monica, under development by Maguire Partners, both of which have proven successful in their markets."

On the acquisition side, cities that were experiencing sharp increases in rents last year are undergoing repricing, opening the door for purchase opportunities.

"We're seeing double-digit cap rates on some office properties, which signals a decline in value," explained Blenko. "For some investors, this is a great time to buy."

Pension funds, however, are steering clear of the commercial office asset class, which is already over-represented in their portfolios, according to Blenko. Acquisition interest is primarily from private, individual investors and REITS, many of which have available investment money that was planned for new development.

An active investor, Haverford (www.hcref.com) has provided mezzanine financing or equity for more than 30 projects of all types valued at more than $800 million in recent years. Haverford Capital is an affiliate of national real estate investment firm, Highridge Partners (www.highridgepartners.com), that has acquired, developed and managed a real estate portfolio valued at more than $3 billion in the past decade.