 |
|
David Twardock |
Prudential Mortgage Capital, which recently formed a venture with an affiliate of Perella Weinberg Partners to originate commercial mortgage-backed securities loans, is confident of its timing. "This is a $3 trillion commercial mortgage market and we strongly believe the CMBS market will be an important component of it in the future," said David Twardock, president of Prudential Mortgage Capital. The company completes about $6 billion of portfolio loans each year and hopes to originate an additional roughly $1 billion of CMBS loans annually.
Despite broader turmoil in the CMBS market that has caused spreads to widen, the venture has already starting to quote new loans. David Schiff, partner at Perella and portfolio manager of its Asset Based Value strategy, said that the firm chose to work with Prudential given its historical activity in the market and its long relationships with borrowers. "Prudential never really left the market," he added.
Twardock spoke with Graham Bippart, senior reporter, last week.
This is one of the toughest environments for CMBS lending since the reboot of the market last year. More than two dozen shops are reportedly competing for loans in limited markets and asset types. Spreads have also widened in recent weeks, making it harder for conduit shops to compete with balance sheet lenders on pricing. Is there room for growth in this market?
DT: This is a long-term proposition for us. This is a $3 trillion commercial mortgage market, and we strongly believe the CMBS market will be an important component of it in the future. This is, of course, only part of our larger business strategy. We do portfolio lending, Fannie Mae, Freddie Mac and Federal Housing Authority loans. There is going to be $300 billion a year of maturing loans and there isn't enough balance sheet capacity to satisfy that refinancing need.
What markets and asset types are you looking at? How will you compete with other shops?
DT: If you think about the market broadly, the insurance companies lend in the core, stable primary markets. The agencies cover a pretty broad section of multifamily. But that leaves a big segment of secondary markets and cities, as well as various commercial property types including office buildings, shopping centers and industrial properties, that are all in need of a fixed-rate capital source. We think that's where the growth will be. There are over-levered assets in a lot of those markets, and as those get back on solid financial footing over the next couple of years, those markets and assets will become more active. It's already started.
How will you source your transactions?
DT: We will source from our existing portfolio and agency relationships, as well as past conduit relationships. [Prudential stopped its conduit lending activities in 2008]. The lending will come from the Prudential side of the joint venture. People can call their Prudential loan officers to access the platform.
Prudential has stated that the loans will be "less risky." Does that mean as compared to the last cycle? Or to other current conduit lenders?
DT: It's both. While it has gotten more competitive, the entire conduit market is still more measured and conservative than 2007. But we have a pretty well known credit culture. If you went back and looked at the credit statistics of loans we made in the last cycle, you'll see that we had among the best quality loans. We believe bond holders will see the value in owning a stake in that kind of quality.
There are a lot of quantifiable measures used in the securitization process to identify loan quality like debt yield, loan-to-value ratio, debt service coverage ratio, but it is not all about numbers. There's a real art to lending. The stability of cash flows over the long run are driven by a lot of subjective factors, like the capabilities of the borrower. And we are a non-recourse lender, [even in our portfolio activities]. So we'll be focused on those factors.
Will you be staffing up for the JV?
DT: We'll add a few people on both senior and junior levels, including loan officers and people to help with the securitization process. We have 420 people on the platform, so we will be leveraging our existing capabilities on a broad basis and adding a few key people.