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LENDERS VIE FOR SHOPPING CENTER LOANS
Lenders chasing retail transactions are finding intense competition for fewer deals.
"There is an abundant amount of capital in the marketplace for all property types, including retail," says Craig Butchenhart, an executive vice president at Legg Mason Real Estate Services in Philadelphia. "It's a very competitive sector. You have a lot of institutional bidding on these deals," Butchenhart says. Legg Mason Real Estate Services typically lends about $2.5 to $3 billion per year, about 20% of which is retail.
The lending environment has become more competitive because of the shrinking inventory of properties that need financing. "I think lending activity is down everywhere, not just for retail," says Mark Finerman, a managing director at Credit Suisse First Boston in New York. At Credit Suisse, the lending volume is down about 30% to 40% in first-quarter 2000 compared to the same period last year. Fewer shopping center owners and investors are shopping the market for capital due to rising treasury rates and increasing spreads that are making mortgage rates more expensive.
"We think there will be less demand for financing in 2000," says Thor Orndahl, a managing director at Prudential Mortgage Capital Co. in Atlanta. Orndahl believes the dip in lending activity is two-fold. Higher rates are one significant component. However, a drop in investment sales and refinancing deals also will impact lending this year. "There was a tremendous amount of early refinancing that occurred in 1997 and 1998, and the pace of transactions has slowed down from that of the past three years," he says.
"There is not as much out there," agrees Brett Ersoff, a senior vice president at New York-based Lehman Brothers. The slowdown started to become apparent during the second half of 1999, but that lull has not stopped lenders from pursuing shopping center deals. "Generally, we have been and continue to be - bullish on retail for both small and large loans," Ersoff says.
Selective lending
Lenders continue to have a healthy appetite for retail properties, but their palates have become more discerning. "There's no question that retail is not the No. 1 product that lenders are looking for," says Sharon Kline, vice president in the Newport Beach, Calif, office of Houston-based L.J....