Our mortgage team just returned from our annual 3-day mortgage bankers conference in San Diego, California. We met with 37 lenders, debt funds, and brokers to talk about 2022's loan production and the forecast for 2023.

2022's commercial loan production was split in two halves. Production was going gangbusters till about mid-year when corporate bonds and interest rates went up and haltered production for banks and life companies alike. Lack of transactions made it difficult to value multi-family projects and seller's were still seeking CAP rates from 6-months prior.

2023 looks more optimistic for most life company lenders. Some have almost completed their 2023 production goals. Some lenders are only wanting to place loans withing the CM-1 parameters, but aren't having too much success so far. The lenders who are making loans and actively winning deals are placing loans within the CM-2 parameters. Here are some additional bullet points from our conference meetings:

CM Ratings

·         CM-1: Debt coverage of at least 1.50x on 25-yr amort (75% or lower LTV) on Retail, Office, Industrial, Multi. Debt coverage of at least 1.85x on 25-yr amort (60% or lower LTV) on Hotel

·         CM-2: Debt coverage of 1.15x – 1.50x on 25-yr amort (1.45x – 1.85x on Hotel)

o   CM-1 loans typically priced 30-50 bps lower than CM-2 (regulators require significantly higher internal reserves from lender for CM-2 loans)

o   Some lenders want a CM-1 rating on all their loans, but they aren’t getting as many deals done with increased rates impacting DCR. Those that are doing more deals are within the CM-2 rating standards. Very likely that the lenders who prefer CM-1 loans will reduce that standard mid-year to get their money out.

Spreads are all over the place: 140 – 270
Many borrowers opting for 5-7 year loans
Office: “Not closing the door on office, but it needs to be a good story AND a good sponsor.”

                      i.      Occupancy important, but utilization also critical

                     ii.      Medical office is still a good asset

                    iii.      Nobody very familiar yet with new Regus license agreement concept

Hotel: very difficult environment – CMBS likely right now.
Retail is back! Desire for more Multi and Industrial remains, though not as heavy as prior years.