Traditional lenders poised for return in wake of CMBS fallout.

By now, the commercial mortgage-backed securities market collapse that occurred at the end of August 1998 is old news. The instability in the capital markets brought on by the disappearance of Wall Street money is also common knowledge. The interesting thing to watch for in 1999 will be the return of more traditional lenders to their previous prominence in the debt market in the wake of Wall Street's decline.

CMBS providers, confronted now with a glut of loans that will take time to securitize and sell, will return to the market as a source of financing after a greater delay than most people expect. When they do reappear, rating agencies will likely be harder on them, enforcing lower loan-to-values for CMBS players in an effort to avoid an instant replay of last fall's debacle.

Prior to their breakdown, CMBS lenders were the dominant debt players, making more money available for all kinds of real estate transactions than any other type of lender. Their departure has created a gap in the debt market and left some investors and developers out in the cold. Traditional lenders, including life companies like MONY Life Insurance Co., a member of the MONY Group, are filling a portion of that gap by continuing to make financing readily available and exploring new structured debt products.

MONY, for instance, is typically willing to do deals with 70 to 75 percent loan-to-value. Under current circumstances, however, MONY is considering mezzanine lending with a total loan-to-value of 80 to 90 percent, comprised of a 70 to 75 percent conventional loan combined with a mezzanine segment commanding a higher rate of return with a more aggressive amortization schedule.

This. does not mean that life insurance company lenders are likely to become less stringent in their underwriting. MONY, for its part, is only interested in mezzanine lending when it's a good gamble backed up by a high-quality property with a convincing cash-flow. Consistent with its past practices, the company wants to be a partner, working with borrowers to build on the value of their real estate.

In essence, conventional lenders are stepping into the breach both in the New York Tri-State area and in other parts of the U.S. by making a greater commitment to the structured debt game. Particularly in New York and its surrounding markets, where massive real estate deals require more structured financing, there is a great opportunity for traditional lenders to serve the needs of developers and investors, especially in a post-CMBS environment.