Commercial Lending Survey 2002

1
Commercial Lending Survey2002

• Jay Sonneborn
• November 12, 2002

The Center for Real Estate and Urban Economic
Studies
2
2002 Survey

• Survey of Current Market Conditions
• Construction lending
• Permanent financing
• Market trends
• 57 Lenders and Appraisal Firms
• 33 Response

OVERVIEW
3
Primary Market of Respondents
4
3
7
OVERVIEW
2
Entire State
6
4
Results

• Current Construction Lending Activity
• 75 of respondents report higher or same activity
  compared to a year ago
• Similar to last years survey
• Much better than year before forecast
• Trend in last quarter
• Stable to declining
• 75 Stable
• 19 Declining
• Somewhat better than last years trend

CONSTRUCTION
LENDING
5
2002 Construction Lending
CONSTRUCTION
LENDING
Reported Activity
Percent of Dollars
6
Types of Projects

• 53 of the respondents reported lending on
  spec projects
• Higher than last year

CONSTRUCTION
LENDING
7
Lend for Spec Projects?
1999
CONSTRUCTION
LENDING
2000
Number of Respondents
2001
2002
Yes
No
8
Pre-Leasing Requirements

• Generally require pre-leasing sufficient to
  provide DSCR1.17
• In addition, some specify an occupancy
  requirement
• Range 50 - 100
• Average 72
• Both DSCR and occupancy requirement very similar
  to last year

CONSTRUCTION
LENDING
9
Construction Lending Rates

• Most common index
• Prime
• Spread
• Prime
• Average 1.13
• Fees
• 63 ½ to 1 points
• 19 1 to 2 points
• Spread and fees down slightly from 2001

CONSTRUCTION
LENDING
10
Index for Construction Lending
Number of Respondents
CONSTRUCTION
LENDING
1999
2000
2001
2002
11
Permanent Financing Terms

• LTV
• Average 75
• No reportsgt75
• DSCR
• Average 1.33x Range 1.2-2.25
• Modal value 1.25
• Maturity
• 20/20 most common
• followed by 10/10
• Repricing
• 5 years

PERMANENT
FINANCING
12
Composition of Permanent Lending
Percent of Dollars
PERMANENT
FINANCING
13
Pricing

• Most lenders reported fixed initial rate
• Average 6.55 Range 5.5-7.75
• Down from last years 7.45
• 3.63 over current 5 year Treasury
• 2001 spread was 3.85
• 2000 spread was 3.20
• 1999 spread was 2.40
• Fees
• Average .58
• Range 0-1.5

PERMANENT
FINANCING
14
Permanent Lending Rate
5 year repricing
PERMANENT
FINANCING
15
Require Terrorism Insurance
PERMANENT
FINANCING
16
Trend in Underwriting
PERMANENT
FINANCING
2001
2002
17
Current Market Conditions

• 67 Viewed as Stable
• 33 Viewed as Declining
• None Viewed as Improving

MARKET TRENDS
18
Most Active Areas

• Subdivision
• 39 list as 1 or 2
• Multifamily
• 33 list as 1 or 2
• Office
• 15 of respondents list as 1 or 2
• Retail
• 12 list as 1 or 2
• Industrial
• 0 list as 1 or 2

MARKET TRENDS
19
Most Active Areas
2001
2002
20
Outlook for the Future

• 6 Month Outlook
• 50 report Stable
• 33 report Declining
• Much more optimistic than last year
• 1 Year Outlook
• 44 report Declining
• 22 report Improving

MARKET TRENDS
21
One Year Ahead Market Forecast
MARKET TRENDS
1999
2000
2001
2002