Hotel Online Special Report
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The Hotel REIT's: Named One of the Biggest Losers in Real Estate Finance in 1998
 
BOSTON - Dec. 10, 1998--The Fantini Gorga, one of New England's leading commercial mortgage banking firms that specializes in arranging real estate loans of all types, today announced its 1998 biggest winners (the bings) and biggest losers (the bongs) in the real estate finance arena.

The Bings: (the winners)

-- Anyone who closed a permanent loan prior to August: Since then the availability of this low priced, easy money, especially from conduit lenders, has substantially disappeared. The terms early in the year were remarkably favorable to borrowers. Near term availability of such terms is as likely to be reappearing as Santa Claus is not to appear this Christmas.

-- Owners who sold real estate early in the year: Many of the insurance companies and most of the early 1990's portfolio buyers of distressed portfolios dramatically reduced their real estate equity holdings prior to the shake out in the debt markets. The current obstacles dampening REIT's ability to raise debt and equity combined with the pared back conduit activity suggests that early 1998 was a climate as ideal to dispose of real estate as sipping eggnog by a crackling fireplace.

-- Banks are big winners, for a change: Because of higher pricing and more stringent underwriting, banks were losing market share to conduit lenders at a frightening pace. Most held their ground and refused to cut prices further or give up on more demanding underwriting. The real estate departments have much to cheer about as they look to next year because their deal terms now look as appealing as a Currier and Ives scene.

-- Insurance companies also turned out to be big winners: They were squeezed on yield and squeezed on quality in order to maintain their market share against the conduits. Even the owners of the most attractive properties were turning to conduit lenders. Their stars for this lender group have brightened considerably because going forward it has been able to fatten pricing and enjoys once again the commanding position as the lender of choice for trophy properties.

-- High yield and mezzanine borrowers: Early in the year the market was flooded with investors who desired to take a big risk for big returns. This allowed many borrowers to tackle risky projects while lying off most of the risks. Much of this high yield money is off the store shelves for now.

The Bongs: (The losers)

-- Buyers of sub prime CMBS securities: Criimi-Mae, a highly regarded mortgage REIT, was forced into bankruptcy early this fall by circumstances completely removed from the real estate markets. These were good people, doing good things, at the wrong time. They got their
hand too far in Santa's cookie jar.

-- The borrowers who deferred long term financing believing that better terms and conditions were right around the corner. They should have realized the abundance of gifts-by way of historically low interest rates and spreads-could not continue.

-- Real estate finance executives who left secure positions at banks and life companies to join conduit lenders. For many, the glitter of big salaries and bonuses has been replaced by coal in their stockings.

-- The hotel REIT's: This sector's stock performance has been miserable. As a result they have been essentially cut off from raising new equity or borrowing new debt. Despite continued strong property performance, Wall Street and the banks have gotten off this sleigh.

-- Conduit lenders: This group began the year with extraordinary expectations. Their phenomenal accomplishments of the last few years were expected to be exceeded. They ended up in the middle of a global blizzard with a very full bag of toys.

Fantini Gorga, headquartered in Boston, specializes in the structuring and placement of financing for all types of existing and planned commercial real estate projects. Its broker professionals have over 100 years of collective real estate finance experience spanning all lender types and property classes, on transaction ranging from $1 million to $50 million. In addition, the firm publishes the Master Money Matrix, the industry's most comprehensive summary of available terms for different types of real estate financing.

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Contact:
George Fantini, Jr.
Fantini  Gorga, Inc.
(617) 951-2600
[email protected]
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Also See: If You Can't Beat 'Em...The big news on REITs during 1998 / Horwath Landauer / May 1998 
Hotel REITs - Promise and Peril As Real Estate Bull Market Ends / Arthur Andersen / Summer 1998 

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