More financing becomes available.

For the past decade, property owners and developers have had a difficult time obtaining financing for a variety of projects. While that crunch isn't completely over from the traditional banking lenders, new sources of capital and refinancing for existing projects have become readily available. Additionally, interest rates have come down dramatically from their highs in the 1980's, and dropped even more from those available only a few years ago.

Lenders are also using different criteria to assess the viability of the loans, be it the people who want to operate the real estate or the length of the lease.

Thomas K. Graf, first vice president of the Amalgamated Bank and the new president of the National Realty Conference, says the banks are looking more closely at the credit, as well as the individual behind the real estate.

"We like to know the person controlling the property has a history with the property or with similar types of property," he said. "Is the person behind this equipped to run the real estate and familiar with the specific problems, or is he new to the business or a fly by night?"

In the past, the bank had looked at the existing income and expenses, but now they look at the historical record, particularly of the individual. "We found where we had problems, the individuals didn't have the experience to run the properties," he explained. "The non-professionals got out and left the banks with the properties."

Amalgamated is active strictly in the first mortgage area, Graf said.

To get a rate, they use the reciprocal Treasury, and then add a spread over that on a case by case basis, based on the quality of the credit. "There is no set rule," he said. "We custom craft a loan."

Graf says they have turned down loans on office buildings where all the leases were coming up in the next five years and the borrower wanted a 10-year loan.

When he gets calls for loans, Graf always asks why the borrower is coming to Amalgamated. Sometimes, he finds out they have been turned down already at nine other banks. "I feel like I'm under siege," he admitted. "If you have represented this in the beginning we could have saved time."

He sees a lot of refinancings but not a lot of acquisitions. Usually, he says, there is an existing mortgage coming due and the other bank is not in a position to roll it over.

BRT Realty Trust, a stock exchange listed company, is basically a mortgage lending real estate investment trust. "Our niche is quick reaction time, short-term bridge lending, where time is of the essence," said Gene Keely, vice president of BRT.

Because they have just recently returned to lending, Keely says, "Every story has hair on it."

He is getting requests for small loans and some oddball types of real estate. "It's guys who need to clean up their act and buy some time," he said.

Currently, BRT is also converting a building they had foreclosed on at Madison and 28th Street to left condos. "It's a great building and a good block," he said.

Jack Houlihan, director of mortgage placement at Houlihan Parnes, agrees the lending market has eased. "You have more people chasing deals," he said. "The interest rates have gone down and lenders are willing to take the exposure."

At the end of 1994, 10-year Treasuries were at 8 percent, said Jerome J. Steiker, who heads Jerome J. Steiker & Co. "Today they are at 6.35 percent. That's a big drop."

There are many institutional lenders in the market and new kinds of lenders that have emerged in the last year or two that weren't around in the beginning of the Nineties, observed Steiker. These now include insurance companies, pension plans, credit companies, savings institutions, and commercial banks.

"There were so many lenders not in the marketplace," he said, "But now there are so many in the marketplace and they are looking for loans." Steiker says the insurance companies and pension funds are the ones picking up the A properties, whereas the conduits, the credit companies and some savings banks are picking up the B and C properties.

Investment bankers and other money sources put together conduits which feed the lenders loans that are then bundled. "It may be a Solomon Bros. putting together a fund of money and getting agents, called conduits, making the loans, of say $2 million to $15 million each," explained Steiker. "Then they bundle them and give them back to Salomon Bros. to securitize them. Then you get a blended rate with great strength. So if average rate was 9 percent, you might get a blended rate of 7.5 percent or 8 percent."

Mezzanine financing is also available, with the lender able to provide more debt coverage but ending up with a piece of the equity. "In addition to the interest rate, they will take a participation in cash flow and the residuals from the sale or refinancing of the project," said Steiker. "The lender can get anywhere from 25 percent to 50 percent participation. That has always been around, but more lenders are doing that."

There are also hard money lenders in "shadow groups" that will make a loan for 15 to 16 percent and 3 percent up front "for someone that is desperate to buy a property or needs a short-term loan."

Steiker is a CPA and engineer with a degree from the Harvard Business School. He is a former president of First National Bank of Rochester and had been with both Sonnenblick Goldman and Lehman Bros. From time to time, he is asked to testify as an expert witness on mortgage rates, terms and interest rates in bankruptcy court.

Currently, Steiker is working as a correspondent for Capital East Funding, which is able to provide expanded debt service. The company finances loans on single asset properties that are net leased to investment grade tenants - retail or industrial and land - and is supported by a $350 million warehouse line "from one of the major banks in America." They can fund immediately and then bundle loans for securitization.

"The genius of this company is that through a proprietary mechanism, we are able to transform a lease to a bonded lease," said Steiker. "As a result of that, we are able to make loans with virtually a 1.0 debt service coverage. And there is no requirement of loan-to-value or for an MAI appraisal because the loan underwriting is based on the credit of the tenant, and not the value of the property."

They can make loans, including construction loans, with no limit on the upside. "In the event a lease is signed but the building isn't yet built, we have a mechanism for doing the construction loan, as well as the permanent loan, and tying it up into one bundle," he explained.

While most loans reflect a spread over the Treasury rates, because the Treasury rates are currently low, Steiker says, "No matter what the spread is, in a relative sense, the loans are relatively affordable. That is a positive thing."

Ten-year Treasuries are hovering around 6.35 percent, so for an existing good apartment building, the loan might be 125 to 150 basis points over that.

"If it's riskier property and a different kind of lender, they are pricing the loans 225 to 300 basis points over the Treasury," said Steiker.

Houlihan just closed a $9 million loan in Riverdale on a 441-unit rental. The rate was 140 basis points over the 10-year Treasury with a 30-year schedule. No fee was charged by the lender. "If you have a great apartment building, you can get great terms," Houlihan said.

He also financed a $3.5 million loan on a 138-unit apartment building in Cherry Hill, New Jersey as a floating rate of 1.25 percent over the short-term LIBOR, now hovering around 5.5 percent.

"You have to bring something to the table," said Houlihan. "That's what gets you the business. "In Jersey, no one could compete. I knew an insurance company that knew the building, and the lender was comfortable taking the leasing risk." Houlihan handles loans in Phoenix, as well as up and down the East Coast.

He says lenders are now "taking tremendous real estate exposure" and are willing, in some cases, to take "hangouts," but at an increased pricing.

One client is buying a Post Office building with a 10-year triple net lease. "We're finding lenders willing to give 20 to 25 amortization schedules vs. the 10-year lease. A year ago they would have quoted an amortization schedule of 12 to 15 years," he said. "If I have a 15-year lease with a credit tenant, I can do it fully amortizing at 150 over the Treasuries or less, and if I have a 10-year lease with the same tenants, and doing a 20-year schedule, it will be 200 basis points over Treasuries. I'll take the risk, but will take the extra point."

Steiker also handles loans around the U.S. and some in other parts of the world. One loan Steiker is working on is a Class A office property in Boca Raton that will obtain $12 million at 150 over LIBOR with a 10-year term and 25-year amortization on behalf of a Canadian investor. Another in Brooklyn is a $4 million loan with a conduit for 10 years with a 25-year amortization, and included in the loan is an amount for tenant improvements for some presently vacant space. "It's unusual, but we were able to negotiate," explained Steiker. He is also negotiating a $51 million loan for a Manhattan office building that will be converted to residential use.

One different kind of loan Steiker is obtaining is a "primer loan." In this instance, the property is in bankruptcy and while the bankruptcy is being approved, the owner needs money for tenant improvements.

"With the approval of the judge, it's possible to get a primer loan that moves in ahead of the existing mortgage and will become a first lien on the property because it's enhancing the value of the property."