National lending trends could help local projects

It's not easy to go on about our lives with the prospect of having to buy bottled water and duct tape intruding our thoughts.

But we march ahead despite ominous warnings plastered all over the Internet and other media. When faced with growing unease and anxiety, the daily routine is almost therapeutic.

The same line of reasoning could be made for real-estate lenders and investors today. In the face of anxiety and unease about the economy and real-estate fundamentals, lending and investment go on.

In fact, loan demand, which is usually tepid in January, has been surprisingly strong amid low interest rates and firming property values, according to the Barron's/John B. Levy & Co. National Mortgage Survey.

Despite looming international crises, which tend to make global financial markets unstable, commercial-mortgage rates continued their hold pattern during the past month and now average 4.95 to 5.75 percent for 5- and 10-year mortgages.

The stability is due in large part to the persistent strong performance of commercial mortgage-backed securities, known by the their acronym CMBS. (Wall Street lenders bundle commercial mortgage loans together and sell them as bonds.)

As corporate scandals made corporate bond investors look for alternative investment opportunities during last year, CMBS gained a wide base of institutional investor support. Now, even as bond investors are creeping back into corporate bonds, demand for CMBS has increased. This, in turn, has held mortgage rates steady.

Two trends for 2003

Earlier this month, mortgage bankers across the country made their hajj-like journey to the industry's convention in San Diego. While the annual trip has no moral significance, mortgage bankers are supposed to leave the convention with a sense of what this year will bring to the commercial-lending world.

Two things were wildly evident: -- loan production in 2003 is expected to surpass 2002 production by a large margin, and -- lenders will have to invest outside of Washington, Boston and New York to achieve their production goals.

With office and industrial markets that are still in recovery, Richmond can expect to attract lenders seeking transactions secured by apartment and retail properties.

Heritage Bank project

Downtown Richmond continues to attract apartment dwellers, and a recently begun project may be setting a precedent that could only have been dreamed of just a few years ago.

At the intersection of 10th and Main streets, between the towering Bank of America and SunTrust buildings, workers from East Coast Glass Systems Inc. are quietly going about the business of turning the old Heritage Bank building into something worth looking at.

The now half black-aluminum, half white-brick building was acquired in October by a local investment group known as American Heritage Place LLC. Partners in the investment group have significant experience in owning and managing residential properties.

This project is on the fringe of one of the most successful apartment development markets in Richmond - Cordish Company's Brown's Island project is moving forward and virtually every warehouse building in Shockoe Bottom is in play. Nonetheless, the Heritage Bank project is sure to attract institutional investment dollars.

Andrew R. Little is an investment banker with John B. Levy & Company, Inc.