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Commercial Lending Survey 2002

Commercial Lending Survey 2002. Jay Sonneborn November 12, 2002. The Center for Real Estate and Urban Economic Studies. 2002 Survey. Survey of Current Market Conditions Construction lending Permanent financing Market trends 57 Lenders and Appraisal Firms 33% Response. OVERVIEW. 0. 2.

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Commercial Lending Survey 2002

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  1. Commercial Lending Survey2002 Jay Sonneborn November 12, 2002 The Center for Real Estate and Urban Economic Studies

  2. 2002 Survey • Survey of Current Market Conditions • Construction lending • Permanent financing • Market trends • 57 Lenders and Appraisal Firms • 33% Response OVERVIEW

  3. 0 2 3 4 5 6 7 8 9 10 1 Primary Market of Respondents 4 3 7 OVERVIEW 2 Entire State 6

  4. Results • Current Construction Lending Activity • 75% of respondents report higher or same activity compared to a year ago • Similar to last year’s survey • Much better than year before forecast • Trend in last quarter : • Stable to declining • 75% Stable • 19% Declining • Somewhat better than last year’s trend CONSTRUCTION LENDING

  5. 2002 Construction Lending CONSTRUCTION LENDING Reported Activity Percent of Dollars

  6. Types of Projects • 53 % of the respondents reported lending on “spec” projects • Higher than last year CONSTRUCTION LENDING

  7. Lend for Spec Projects? 1999 CONSTRUCTION LENDING 2000 Number of Respondents 2001 2002 Yes No

  8. Pre-Leasing Requirements • Generally require pre-leasing sufficient to provide DSCR=1.17 • In addition, some specify an occupancy requirement • Range 50% - 100% • Average 72% • Both DSCR and occupancy requirement very similar to last year CONSTRUCTION LENDING

  9. Construction Lending : Rates • Most common index: • Prime • Spread • Prime • Average: 1.13% • Fees • 63% ½ to 1 points • 19% 1 to 2 points • Spread and fees down slightly from 2001 CONSTRUCTION LENDING

  10. Prime T-Bill LIBOR FHLB Index for Construction Lending Number of Respondents CONSTRUCTION LENDING 1999 2002 2000 2001

  11. Permanent Financing : Terms • LTV • Average : 75% • No reports>75% • DSCR • Average: 1.33x; Range: 1.2-2.25 • Modal value 1.25 • Maturity • 20/20 most common • followed by 10/10 • Repricing • 5 years PERMANENT FINANCING

  12. Composition of Permanent Lending Percent of Dollars PERMANENT FINANCING

  13. Pricing • Most lenders reported fixed initial rate • Average: 6.55%; Range 5.5-7.75% • Down from last year’s 7.45% • 3.63% over current 5 year Treasury • 2001 spread was 3.85% • 2000 spread was 3.20% • 1999 spread was 2.40% • Fees • Average .58% • Range: 0-1.5% PERMANENT FINANCING

  14. Permanent Lending Rate 5 year repricing PERMANENT FINANCING

  15. Require Terrorism Insurance PERMANENT FINANCING

  16. Trend in Underwriting PERMANENT FINANCING 2001 2002

  17. Current Market Conditions • 67% Viewed as “Stable” • 33% Viewed as “Declining” • None Viewed as “Improving” MARKET TRENDS

  18. Most Active Areas Subdivision • 39% list as #1 or #2 • Multifamily • 33% list as #1 or #2 • Office • 15% of respondents list as #1 or #2 • Retail • 12% list as #1 or #2 • Industrial • 0% list as #1 or #2 MARKET TRENDS

  19. Most Active Areas 2001 2002

  20. Outlook for the Future • 6 Month Outlook • 50% report Stable • 33% report Declining • Much more optimistic than last year • 1 Year Outlook • 44% report Declining • 22% report Improving MARKET TRENDS

  21. Improving Stable Deteriorating One Year Ahead Market Forecast MARKET TRENDS 1999 2000 2001 2002

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