Friday, November 2, 2007

What goes around comes around

Lisa Galley's Our Green Journey is the newest addition to my blogroll and a good one at that. I enjoyed reading Lisa's post on her experiences at the Counselors of Real Estate conference in San Francisco. Her post yesterday on extinct loan terms got me to thinking about cycles again. Example: mezzanine lending was an endangered species a couple of years ago, but now you are starting to see mezz debt come back. Just as demand is cyclical, certain types of deal structures are too.

Hopefully we won't see the days of interest only loans and overly generous cash-out refis on residential property that assume continued astronomical appreciation. I don't think they are healthy for that market. I was just talking to a banker friend of mine about some of his clients doing cash out refis in the commercial market, albeit at LTVs that (hopefully) make sense.


Lisa Michelle Galley: said...

Thanks for this, David. And your friend is right about the sensible cash-out. Using reasonable leverage to take profits based on real cash flow and value creation, as opposed to cap rate compression, can still work in a good market.

Jeff Brown said...

David -- On the other side of the ledger, residential income, especially the small stuff, comes a relatively new twist.

On neg/am loans, some lenders are now requiring the title companies to insure 115% of the loan amount on the lender's policy.

Maybe they have learned something. :)

David Stejkowski said...

Jeff, that is a fascinating and smart twist! I like I wonder whether there is a legal issue with the ALTA form policy that might allow the title company to deny coverage above the actual value, but hey, not my problem. :) Thanks as always for being here!