Wednesday, July 25, 2007

Real Estate and the Chrysler -Cerebrus sale

You might be wondering what the Chrysler-Cerebrus deal and the inability of the investment banks to sell the debt has on the commercial real estate market. Perhaps none. But let's talk it through.

Chrysler is a company in trouble. If it was dirt, I'd consider it B-piece or a low-tranche debt in a CMBS deal. But what about stronger companies? Yeah, credit is tighter but that just means you do not leverage a deal as much as we've seen.

Many dirt deals are not done with huge amounts of leverage. Sure, we hear about the super-leveraged transactions and even do them from time to time, but they are probably the exception. Commercial real estate is still on the rise, or so says the Fed's Beige Book that was released a few minutes ago.

More importantly, you still have the mezzanine market to consider and to use for high-leverage real estate deals, though probably not for the low-cap rate purchases. I used to do much more mezz financing than I do now, but money is still out there. And it'll be out there for corporate transactions as well. In fact, Goldman is raising capital for a $12.5 billion "rainy day fund" for mezz financing of corporate transactions. I think this kind of against-the-herd thinking is nothing short of genius.

Where there's money to be made, lenders will be there to finance it, and deals will be done. They may not be 11-digit deals, but they'll be done.


Jeff Brown said...

A very smart man told me something a long time ago that's proven to be true, without exception.

Lenders lend - or they die.