Like the spring, that is obviously months away, the credit markets continue to show signs of new life forming as the long winter thaws. Banks continue to shed unhealthy assets and warm to the necessity that providing debt is critical to their becoming or remaining profitable. Something they are no longer taking for granted. Trepp reports that banks could be as much as 70% through their loss recognition process on commercial real estate. We see new bank lenders entering the market and rejuvenated bank lenders returning to the market now that the light at the end of the tunnel is clearly daylight and not an oncoming train.
2011 saw the reemergence of CMBS lending in the form of CMBS 2.0, which unfortunately was derailed early in 2011 with a lack of investor appetite for bonds rated below AAA. Currently, the CMBS market appears to be back to where we left off in early 2011 and looks like it could be the darling of the credit market in 2012. That is especially so if you consider the amount of debt maturing this year and the level of debt it will require to renew a significant portion of it. Credit standards for CMBS 2.0 are much more conservative than the original CMBS, especially considering the loss retention aspect, so I do not think we will see CMBS lenders considering “specialty asset types” like golf courses, before filling up enough bonds with their main food groups (multifamily, retail and office buildings).
Life insurance companies expanded their allocations in 2011 and some exceeded their allocations once they realized the high quality of the deals they could do. Life companies hope to lend even more in 2012 than they did last year, but again, they typically limit themselves to trophy properties in large metropolitan markets with low leverage needs.
Improvements in U.S. GDP, employment and consumer confidence will support the notion that 2012 should see more rounds played. In addition, an increase in course sales activity should help stabilize course values, to some degree. These trends should help operators attract lenders to both finance, purchase and refinance transactions. Loan-to-values will remain more conservative than the current favorite, multifamily, but that’s a fact that isn’t likely to change anytime soon. Golf and resort buyers will need to show more liquidity, operational experience and lenders will continue to focus on “global cash flow”. Golf course loan options are improving with local and regional banks as well as credit unions taking up most of the slack. To name a few, PNC and Wells Fargo have recently financed golf assets however, the majority of these loans were credit loans based more on the borrower’s financial strength than the golf asset being purchased. The grass is getting greener on “this side” but we have a ways to go until we can play on it consistently like we used to!
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