05/13/2011

New Mix of Foreign Banks Chasing US Loans

A changing of the guard is taking place among foreign banks that lend on U.S. commercial real estate.

Many institutions active during the boom, especially Irish and German lenders, have pulled out of the U.S. market or significantly scaled back their activity. Meanwhile, a new cast of players is starting to fill the void, including a half-dozen Chinese banks and even lenders from Singapore and Russia.

While many of the exiting banks took heavy hits on U.S. loans during the downturn, that hasn’t discouraged the new entrants. “Some foreign lenders may feel there is a stigma attached to U.S. investments to some degree, but there are always institutions that will step in,” said Edward Mermelstein, whose New York law firm, Edward Mermelstein & Associates, advises foreign banks looking to do business in the U.S. “Bad timing and greed have a short memory once lenders see a great opportunity open up.”

Some foreign bankers are eager to take advantage of what they view as a short-lived chance to capture business before large U.S. institutions clean up their balance sheets and get fully back in the game. The weak dollar is adding to their lending capacity.

As for the Chinese banks, the motive is simple: They have vast reserves that need to be put to work. At least seven Chinese banks have bid or considered bids on U.S. loans in recent months. Four are state-owned: Bank of China; Industrial and Commercial Bank of China; Agricultural Bank of China; and China Construction Bank. The others are China Everbright Bank, China Merchants Bank and Minsheng Bank.

The list of newcomers also includes United Overseas Bank of Singapore and VTB Bank of Moscow.

So far, two of the Chinese banks — Bank of China and Industrial and Commercial — have been the most active among the newcomers, with many of the other lenders just starting to kick the tires. Bank of China has scooped up several loans on trophy properties since entering the market in 2009, including an $800 million fixed-rate loan to Brookfield Office Properties on the 1.8 million-square-foot office tower at 245 Park Avenue in Midtown Manhattan and a $130 million loan to fund shop LBA Realty on the 1 million-sf AT&T Center office complex in Los Angeles. Industrial and Commercial funded $150 million of a $355 million loan to a Carlyle Group partnership on the 602,000-sf office building at 650 Madison Avenue in Midtown Manhattan.

Chinese banks are positioned to be formidable contenders for loans. “Asian capital is capable of moving very fast and in large amounts,” said Benjamin Wey, president of New York Global, an advisory firm that specializes in U.S.-China trade. “They don’t have as many burdensome compliance procedures and rigid regulations as we are used to in the U.S. And they have tremendous foreign currency reserves.”

The market crash spurred a large-scale exodus of foreign lenders. Three Irish banks that were active during the boom — Allied Irish, Anglo Irish and Bank of Ireland — all pulled out after their U.S. woes compounded losses on investments in Europe. Anglo Irish is moving to unwind its $12 billion portfolio of U.S. commercial mortgages, and Allied Irish last month shopped $950 million of performing U.S. loans.

The lineup of German banks has also been shaken up. A number of portfolio lenders that were active during the boom have retreated, including Bayerische Landesbank, Bayern LB, Commerzbank, DG Hyp, HSH Nordbank and Hypo Real Estate. Other German lenders pulled back sharply, although some appear to be cautiously resuming originations, including Aareal Bank, Deka, Eurohypo, Helaba Bank, Nord LB, PB Capital and WestImmo.

Some major British, Canadian and Swiss banks, after pulling back during the downturn, are also lending again.

In the securitization market, Deutsche Bank and UBS, which actively wrote U.S. commercial MBS loans before the crash, have revived their conduit operations, and Barclays is also moving to restart its shop.

Foreign portfolio lenders tend to prefer the relative stability of office buildings and high-end apartments in major U.S. cities, where the downturn did the least damage. “We think we will see lending by foreign banks continue to grow here,” Mermelstein said. “What better place is there to deploy their capital? The U.S. markets that are still strong, especially Washington and New York, are a great opportunity right now.”

Wes Boatwright, a veteran loan broker in Jones Lang LaSalle’s Washington office, said foreign lenders are especially attracted to Washington because of the stability of the U.S. government. “Many foreign banks prefer Washington to New York or any other U.S. city,” he said. “We are the center of the universe when it comes to political power, and properties here are highly desirable because of that global recognition.”

Boatwright said that borrowers choose foreign lenders because they can get a larger loan from a single institution, with a longer term and faster execution than are available from domestic banks.

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