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Is money burning a hole through the pockets of commercial mortgage bankers? Not exactly, but we've been out in sunny San Diego with about 2,300 of them at the Mortgage Bankers Association?s annual CRE finance and multifamily convention, so we do know what's heating up.
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The big takeaway: Fundamentals are improving, so assets are becoming more financeable, and thus real estate is looking good as a global investment again. Here?s MBA 2011 chairman and moderator Michael Berman (CEO of CWCapital), KeyBank Real Estate Capital EVP E.J. Burke, Cohen Financial CEO Jack Cohen, Morgan Stanley managing director Timothy Gallagher, Principal Real Estate Investors CEO Patrick Halter, and PNC Real Estate/Midland Loan Services EVP Diana Reid. Tim says during the boom, Morgan Stanley made casino and construction loans, which it shouldn?t have done, and the ?spotlight on us right now is so much brighter than it's ever been? to make sure we do things right. Jack says it's all about the jobs, pointing out that CRE values and the number of jobs are about the same as 10 years ago, and yet there is more space to fill (thanks to efficiency).
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We're about halfway through the distressed loan workouts and delevering, Diana says, and the process is slow—asset by asset, borrower by borrower, situation by situation. The good news: The flow into special servicing is now equal to the outflow. As FDIC bank closings pick up, it's part of the sign that we're working our way through the distressed loans. E.J. says there's a perception that there are tons more to come in bad debt, but the top 25 banks? higher-quality loans make up 85% of the market, while the remaining 7,750 small banks that typically did the riskier deals (think construction loans) make up just 15% of the market. Expect higher deal volume this year, but keep an eye out for rising interest rates, Egypt, and, of course, Dodd-Frank details: 100 of the 300 rules and studies filling out that regulatory skeleton deal with lending.