CRE Lenders Try to Hold On to Underwriting Discipline to Avoid Future Refi Risk

In a market with high demand for new loans, lenders are trying to structure deals with an easy exit at maturity.

The drop in interest rates has been great news for borrowers, with low cost of capital that is effectively giving them more buying power. Yet, for the most part, lenders are keeping borrowers in check on leverage and structuring deals with an eye on an easy exit at maturity.

Lenders learned some hard lessons in the last recession that are now being put to work to mitigate future refinancing risk. “We’re nowhere near the same place that we were back before the Great Financial Crisis,” says Tom Genetti, a managing director at capital services provider Berkadia. “I think the discipline being shown in the marketplace today is substantially higher. There is real equity in these deals, and no one is allowed to put in fluff or big fees to make their (equity) look bigger than it should be.”

There’s a lot of data that goes into refinance tests, and that data definitely helps the lender get comfortable with the refi risk coming out in the future, adds Jeffrey Erxleben, executive vice president, regional managing director with NorthMarq Capital in Dallas.

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