5.4.12: Mahesh (Mike) Patel Wins IPAD 2 Drawing at AAHOA Show

Hotel owner Mahesh (Mike) Patel won a new 32GB IPAD 2 at the ValueXpress booth at the Asian-American Hotel Owners (AAHOA) Convention and Trade Show in Atlanta, GA last week. When we first called Mr. Patel and told him he’d won the IPAD, he responded, “No, I already received the IPAD that I won.” We learned that this indeed was Mike’s lucky day; earlier, he had won an IPAD drawing sponsored by AAHOA. Mike went home with 2 IPADs!

Mr. Patel is the owner of the Super Inn Motel located on 4200 Wesley Drive in Decatur, GA, 20 miles west of downtown Atlanta.  The property has immediate access to I-20 and the I-285 loop that surrounds Atlanta.  According to Mike, his motel features very friendly hotel staff and clean rooms that fit travelers on a budget.   Mike noted that the property is in close proximity to McDonalds, Popeye’s Chicken and Golden Dragon Chinese; hungry guests don’t have far to travel to get a meal.

“We were thrilled that Mike was in the trade show hall when we drew his winning card,” said Jay Bhakta, who runs the Mississippi office for ValueXpress. “It was a pleasure to meet and speak with Mike and laugh about his winning 2 IPADs in one day.” Over 400 cards were submitted for the ValueXpress IPAD drawing, which we consider a big success.

5.1.12: Opportunities & Challenges for Portfolio Lenders and CMBS

On May 1^st CRE Finance Council sponsored a seminar on the prospects for commercial real estate lending in the near and longer term.  Panelists were a mix of CMBS conduit pros and insurance company lenders; they included Jon Martin from Wells Fargo, representing both a portfolio bank lender and CMBS originator, and Philip McKnight of Easdil Secured, representing the brokerage community that places commercial loans with commercial banks, insurance companies and CMBS shops.

The universal opinion expressed is that insurance companies will continue to capture the choice assets, with interest rates in some cases that begin with a 3, but in most cases in the low 4% range for a 5- to 7-year loan and not much higher for a 10-year deal.  General agreement is that the CMBS conduit loan originators cannot compete at that level; however, the CMBS panelists were quick to point out that the spread gap between insurance company quotes and CMBS is shrinking in 2012, with sub-5% rates on CMBS possible for the right asset.  In addition, general opinion is that CMBS will capture all of the insurance company scraps: higher leverage, tertiary location, older assets and perhaps some less-than-mainstream asset types.  Strong feelings were expressed that there will be lots of this business for conduit lenders.

But not enough to feed all the CMBS origination machines when the conversation turned to underwriting.  The panelists shared concern regarding competition among originators leading toward a slow erosion of underwriting standards.

“As a buyer of CMBS securities for our affiliated bank, Country Bank, I was listening intently,” said Michal D. Sneden, Executive Vice President of ValueXpress. “I need to know when to stop buying new issue CMBS when the underwriting gets out of hand.”

4.30.12: Cash Management and CMBS Conduit Loans…Not Perfect Together

One of the more burdensome structural features of CMBS 2.0 (post-2010 CMBS conduit loans) has been the insistence of cash management accounts for nearly all CMBS conduit loans.  In summary, cash management accounts are set up for each transaction as a bank account in the name of both the borrower and the lender, but it’s primarily under borrower control.  Depending on how the loan documents read, the lender can seize control of the property cash flow in the event of declining performance or default.

The reasoning for cash management accounts stems from borrowers not considering the lender a top priority in uses of cash during periods of property stress and diverting cash flow to uses other than paying debt service, real estate taxes and the like on properties secured by CMBS conduit loans.  So to protect themselves, lenders have inserted themselves in the cash flow stream.

The way cash management works is all property cash flow must pass from the property source (tenant rent payments, credit cards receipts from a hotel room sales, etc.) through the cash management account.  As long as the property is generating a DSCR greater than a prescribed level (generally 1.15-1.25x) the funds pass immediately into the borrower’s operating account.  This is known as a “soft” or “springing” form of cash management, as the lender’s right to control the cash “springs” upon a “trigger event,” such as the property falling below the prescribed minimum DSCR, whereby the lender stops the cash pass-through and begins to collect debt service, escrows and capital reserves and remitting the balance of the cash only in accordance with an operating budget.  While “springing” cash management sounds bad, “hard” cash management is worse.

“Hard” cash management requires all of the above; however cash flow does not pass immediately into the borrower’s operating account.  Instead, cash flow is directed into buckets for debt service, escrows, capital reserves, operating expenses, and once a month, the operating expense bucket is released to the borrower to pay operating expenses.

“One of my borrowers asked why the lender doesn’t simply take the property at closing since they have all the cash anyway,” said Michael D. Sneden, Executive Vice President of ValueXpress.  “But he was right, it is important to negotiate into a less-onerous “springing” cash management and water down the provisions of “hard” cash management on properties such as hotels.  ValueXpress has been successful in reducing the burdens of “hard” cash management in all the CMBS conduit loans that have required it,” said Sneden.

ValueXpress Provides $1,800,000 Fannie Mae Small Balance Loan

ValueXpress provided a $1,800,000 loan secured by a 54-unit garden apartment complex located in Hampton, VA. The property was purchased in 2005 by the sponsor, a local investor who owns multiple apartment complexes in the Hampton, VA market.  The purpose of the loan was to refinance a maturing Fannie Mae loan.  The 65% LTV, 10-year fixed-rate loan amortizes based on a 30-year schedule and was locked at an interest rate in the mid-4% area.

“The sponsor was able to extract significant cash-out from this transaction for use in another real estate project,” commented Michael D. Sneden, Executive Vice President of ValueXpress. “We worked through military concentration issues with Fannie Mae to be able to deliver the cash proceeds that were applied for.”

“Based on our success with this transaction, we are moving to complete Fannie Mae financings on two other larger projects owned by the sponsor that will result in significant interest savings as the other projects have relatively high interest rates,” Sneden said.

4.23.12: ValueXpress Exhibiting at AAHOA Trade Show in Atlanta, GA

ValueXpress will be exhibiting at the annual Asian American Hotel Owners (AAHOA) Trade Show in Atlanta, Georgia May 3-4, 2012. ValueXpress will be located in booth 739 at the Georgia World Congress Center noon-6:00 p.m. on both Thursday, May 3 and Friday, May 4.

“ValueXpress is an Allied Member of AAHOA and has been exhibiting at the AAHOA Trade Show for over 15 years,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “We have completed over 100 hotels loans during this period with many of those loans to AAHOA members. The trade show presents an excellent opportunity to allow hotel owners to meet personally with us to learn how we can assist them with their financing needs.”

“This year it’s particularly important for us to talk with our clients,” stressed Jay Bhakta, a senior loan originator at the ValueXpress Jackson, MS office and active AAHOA member. “Many hoteliers are not fully aware that the CMBS conduit loan market is aggressively seeking quality hospitality loans from owners of hotels that performed through the 2008-2009 recession. In addition, with the increase in SBA loan limits to $5 million and the expansion of the SBA 504 program to allow refinancing, hoteliers have more options than ever to secure financing for their hotels.”

ValueXpress welcomes the opportunity to meet with hotel owners at the trade show to explain in detail its SBA 7(a), SBA 504, USDA B&I, CMBS conduit and conventional loans for hospitality properties. Call Jay Bhakta at 601-918-2850 for your personal appointment.

4.19.12: Lending Rebound Bolstering CMBS Pipeline

According to Commercial Mortgage Alert (CMA), commercial MBS issuance is picking up steam.  After a slow first quarter, volume is now on track to reach $20 billion by midyear. That would surpass the $17.1 billion of activity in last year’s first half and put the sector on pace to exceed the $38-billion annual issuance forecast by a panel of CMBS professionals.  Ten more transactions totaling $11.8 billion are expected to price by midyear, according to a review by CMA. Coupled with the $3 billion of transactions that have already priced this month, second-quarter volume would total $14.8 billion — more than double the $6 billion of first-quarter activity.

According to CMA, the pipeline through June 30 contains eight multi-borrower transactions totaling $10.2 billion, a $1.4-billion single-borrower deal and a $200-million distressed-loan securitization. By month, that breaks down to $2.9 billion for the rest of April, $2.9 billion in May and $6.0 billion in June.  The pickup in activity reflects somewhat better lending conditions for CMBS shops in recent months. What’s more, lenders said borrower inquiries have increased steadily over the past few weeks, raising hopes for a busier second half.

4.16.12: AAHOA Heads to Washington, D.C. in Support of SBA Program Extensions

Asian American Hotel Owners (AAHOA) leaders met with members of Congress to discuss two legislative priorities.  In recent months, discussions in Washington, D.C. have centered on eliminating the SBA 504 Loan Refinancing Program, which is scheduled to expire in September.  AAHOA has asked Congress to make its first priority this year reauthorizing the program under the Small Business Jobs Act.  Additionally, AAHOA asked lawmakers to remove some onerous program eligibility requirements that prevent many hoteliers and other small business owners from taking advantage of the SBA 504 program.

“We believe Congress needs to make the criteria simple,” explained Anurag Varma, AAHOA Legislative Counsel.  “We want to say those who have received [SBA] loans all these years should still be able to get the loans.”  Varma was referring to hard and fast rules that, for example, disqualify a borrower unless the borrower can certify that timely loan payments were made for the previous 12 months.  Varma suggested that the loan underwriting criteria should be sufficiently flexible to accommodate alternative ways to demonstrate a borrower’s creditworthiness.  The association also suggested special exemption for borrowers who miss a payment due to circumstances beyond their control, such as a bank failure.

“People on the Hill are more interested to hear our ideas about simplifying the process,” Varma said. “This is truly a costless idea and something Congress can get behind.”