By Al Yoon
NEW YORK (Reuters) - Banks and insurance companies are filling the void in commercial property lending left by Wall Street firms by aggressively making deals and will be sated before the end of the year, a top real estate services executive said on Monday.
Lenders that use such assets as deposits and insurance premiums to fund loans rather than relying on bond investors, will likely soon match the $125 billion in funding made in 2007, Scott Latham, executive vice president of capital markets at Cushman & Wakefield, told the Reuters Global Real Estate Summit in New York.
"A lot of those balance sheet lenders will be out of money long before the year is over because they have so many compelling deals to focus on," Latham said. "They are seizing the opportunity to get their money out in a market ... where the dominant competitor is not out on the field yet."
New lenders, such as private banks, are showing up in the market weekly, but they are not large enough to make up for the funding shortfall caused by the near-closure of the commercial mortgage-backed securities (CMBS) market shepherded by Wall Street, he said.
Fixed-rate CMBS issuance has reached a mere $11 billion this year, nearly $100 billion less than was issued in the first six months of 2007, according to JPMorgan Chase & Co. The volume neared $250 billion in 2007, Latham said.
Sam Davis, a senior managing director with Allstate Investments LLC, said in a recent interview the insurer would hold back on expanding its reach despite opportunities left by Wall Street's inability to raise money from investors. Eroding fundamentals in commercial real estate, such as vacancy rates and rents, could surface in coming months, given the U.S. economic slowdown, he said.
"We're close to the maximum of where we want to be on an asset-allocation perspective," Davis said. "It's likely we are going into a recession. Anytime you head into a recession, you don't want to have a lot of real estate on your books."
Wall Street is hoping it can restart its own commercial real estate loan origination business with other lenders tapping themselves out, and feed a CMBS market that may not have enough good loans to create an issue until fall, sources have said.
But the CMBS market may not be able to respond since it is in the process of "reinventing itself" after being crushed by the global credit crunch, Cushman's Latham said.
Investors, especially those outside the United States, may stay away as they watch how the U.S. financial services sector and national economy handle current turbulence, he said.
"Most of us are quite edgy about the macroeconomy," he said.
(For summit blog: summitnotebook.reuters.com/)
(Editing by Jeffrey Benkoe)
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