PCCP, LLC  has provided a $38.72 million senior loan to finance the note purchase and provide funds for completion and leasing costs for Burr Ridge Village Center, a mixed-used property located at 1000 Village Center Drive in Burr Ridge Ill, a southwestern Chicago suburb. The owner of the property is an entity managed by Founders Properties.

Burr Ridge Village Center consists of 196 residential condominiums (62 of which have not yet been sold), 37,000 square feet of office condominiums, and 195,441 square feet of retail space which was completed in November 2007 and is leased to major tenants such as Banana Republic, Victoria’s Secret, Kohler Spa, Bath and Body Works, and Aeropostale.

“The loan proceeds PCCP has provided will recapitalize the original construction loan and provide capital for the completion costs associated with leasing of the retail portion and finishing construction of the residential condominiums. The owner will now be able to offer the retail and residential condominiums at market rates,” said Barrie Bloom, vice president with PCCP, LLC.  “This investment gives PCCP the opportunity to originate a loan at an attractive basis on a unique retail and residential condominium property. The asset is also supported by strong retail tenants and a healthy residential condominium sales market in an affluent Chicago submarket.”

Burr Ridge Village Center is one block south of Interstate 55 and is approximately 22 miles southwest of downtown Chicago. It is surrounded by the affluent communities of Hinsdale, Indian Head Park, Western Springs, Willowbrook, and Willow Springs. The population within a five-mile radius of the property is approximately 190,000. Adjacent to Burr Ridge Village Center is one of the most successful Lifetime Fitness facilities, which has more than one million visitors per year.

Working on behalf of Inland Western Retail Real Estate Trust, Inc. (Inland Western) and a pension fund advised by Invesco Real Estate, HFF placed the fixed-rate loan with an affiliate of Hartford Investment Management Company. 

Completed in 2002, Oswego Commons is 98.4 percent occupied by tenants, including Dominick’s grocery store, T.J.Maxx, OfficeMax and Petco. Additional tenants include Party City, Famous Footwear, Panera Bread and Hallmark. The property is situated on nearly 30 acres at 3020 West Route 34 in the southwest Chicago suburb of Oswego.

The HFF team representing Inland Western was led by managing director Timothy Joyce and senior managing director Kevin MacKenzie.

Inland Western is a fully-integrated, self-administered and self-managed real estate company that owns and operates high-quality, strategically located shopping centers and single-user retail properties. Inland Western is one of the largest owners and operators of shopping centers in the United States.  As of September 30, 2011, the firm’s retail operating portfolio consisted of 265 properties with approximately 34,835,000 square feet of gross leasable area (GLA), was geographically diversified across 35 states and includes power centers, community centers, neighborhood centers and lifestyle centers, as well as single-user retail properties.

Invesco was established in 1983 to provide real estate investment advisory services to U.S. institutional clients.  Headquartered in Dallas, the firm presently manages approximately $43.7 billion in direct U.S., European and Asian real estate assets and publicly traded real estate securities.

Jeffrey Wolfer

Backed by two partners who have closed more than $2 billion in loans combined during their careers, Silver Arch Capital Partners has been launched as a nationwide direct lender to the commercial real estate market.

The firm specializes in quick closings on bridge loans to owners, investors and developers seeking financing outside the scope of traditional sources of funding.

“Silver Arch Capital Partners was formed with the goal of assembling the most creative minds in real estate lending under one banner,” said Jeffrey Wolfer, president and chief executive officer of the new Hackensack, N.J.-based firm. “Because access to capital remains challenging in the current economic climate and can be challenging for many in any economic climate, it is important to have a depth of experience and creativity on your side when seeking financing.”

Silver Arch draws from a variety of financial resources, among them a strategic partner with a $2.5-billion balance sheet.

“In situations where a traditional source of financing might see obstacles to a loan, we see opportunity,” said Wolfer. “We are prepared to fund a borrower that other lenders might have turned down. We have the creativity and flexibility to make it work.”

Silver Arch Capital offers funding for everything from acquisitions to restructurings, discounted payoffs, note purchases, property improvements and new construction, for every type of real estate property. That includes multi-family, office, retail, mixed-use, industrial, warehouse, hospitality and land.

Loan sizes range from $5 million to $100 million, for one- to three-year terms with extension options. Interest rates range from 9 percent, LTV up to 75 percent and fees from 2 percent.

Wolfer brings more than two decades of private lending experience to the firm. This experience includes more than 400 loan closings totaling more than $2 billion. In 2007 alone, he closed in excess of $500 million of loans and was instrumental in obtaining a $300-million credit facility from Fortis Bank.

Also part of the executive team is managing director David Vynerib, whose 14-year resume includes positions at Sigma Capital Partners, CIBC Oppenheimer and Axiom Capital. He was also one of the founders of Citi Habitats, one of Manhattan’s largest rental real estate firms.

“As capital continues to be difficult to access from the traditional banks and other lending sources, we are well-equipped to provide the access to capital that commercial real estate borrowers need,” said Wolfer. “These borrowers are prepared to generate economic growth and activity and create jobs with their projects, and we are fully prepared to make that happen.”

Collateral for the senior loan included a fully occupied multi-family complex and a stabilized retail center.  Bloomfield’s loan allowed the borrower to consolidate two prior loans and begin the process of procuring long-term financing.

In an already heavily bifurcated market, the division may grow even more between quality assets and struggling assets. Ed Wlodarczyk, senior vice president of Corporate Real Estate and Capital Market Services at UGL Services in Chicago, recently participated in a Q&A addressing the concerns and issues facing capital markets and the effect it could have on commercial real estate.

Q: The first wave of refinancing from the big CMBS days of the past decade begins next year. An average of $400 billion needs to be refinanced each year for the next five years. Banks will take care of some of this, but the CMBS market is only a fraction of what it was. What will make up for the lack of CMBS?

A: CMBS started a recovery in 2010 and activity increased in the first half of 2011; albeit a smidgen of prior levels of volume; however, credit market volatility and uncertainty has resulted in failed issuances and below market projections for 2011.

Life companies, REIT’s, Private equity and foreign capital sources will be called upon to fill the void of CMBS. Pressure will also be made in the recovering money center banking environment to restart lending.

In any event, underwriting fundamentals and asset valuation will be the key to handling maturities moving forward.

Q: Could this refinancing trigger a significant re-pricing of the industry?

A: “Pretend to extend” and CRE workouts have had successful results. However, we still are in and will be for some time, a bifurcated marketplace of “haves” and “have nots”. This phenomenon will result in pricing adjustments. Smaller regional and community banks will continue to face liquidity challenges and will be forced to ask for additional equity from sponsors looking to refinance the asset.

The bottom line is that debt incurred at the peak of the market is coming due at a time of severe economic uncertainty, where “the have nots” are still difficult to refinance, mainly because the debt is still estimated to be in excess of the value of the underlying real estate or at loan levels exceeding current underwriting standards.

Q: What markets are attracting capital right now?

A: High quality, stable assets located in major markets like Chicago, New York, Los Angeles, San Francisco, Washington and Boston are in high demand. Multi-family assets are still at the top of many institutional and private equity lists, followed by industrial, retail and office. Also, there has been an uptick in hospitality across the same geographical areas.

Q: Who is buying right now?

A: The first half of 2011 saw an increase in transaction activity in the Chicago marketplace in office and industrial transactions from the prior year, albeit still significantly lower than peak levels. Buyers of office assets included private equity-32%, cross border investors-28%, public REITS-22%, institutional investors 15% and users-3%. Institutional investors made up almost 50% of the buying population of industrial assets followed by private equity-29%, users-12% and public REITS-10%. Highlights include the sale of the ENV Apartments, The Wrigley Building, Pannatonni Industrial I-55 Portfolio, Parkway Office Portfolio, 200 S. Wacker, and 200 W. Madison.

Q: What is your outlook for the Chicago market?

A: It will be like “Groundhog day,” where everything stays the same. At least through the third quarter of 2012 with a strong emphasis on jobs, consumer confidence, and political landscape as it relates to taxation and deficit management within the CBD and State.

Key drivers will continue to showcase the metro area as a “gateway” city which will draw investors’ appetite to increase their holdings in the marketplace.

Ed Wlodarczyk is the senior vice president of Corporate Real Estate and Capital Market Services at UGL Services in Chicago. He is responsible for leading the integration of these service platforms with the company’s Advisory Services strategies and initiatives and is a member of the senior management team. Ed most recently spent three years with Transwestern Commercial Services as Senior Vice President of the Midwest Region. Wlodarczyk hold a degree in Business and Communications from Loyola University Chicago.

Jeff Frankel, senior vice president and senior director in NorthMarq Capital’s (NorthMarq) Chicago Regional office arranged first mortgage refinancing of $2.1 million for the Walter E. Smithe Furniture Store, a 9,795 square foot retail property located at 2009 N. Clybourn Avenue in Chicago. Financing was based on a 10 + 10-year term and a 20-year amortization schedule and was arranged for the borrower, 2009 North Clybourn L.L.C., by NorthMarq through its correspondent relationship with Symetra Life Insurance Company.

Greg Duvall, senior vice president and senior director of NorthMarq’s Kansas City Regional office, arranged a first mortgage refinance of $5.75 million for Wentworth South, a 312-unit multifamily complex located at 8633 Q. Plaza in Omaha, Neb. Financing was arranged for the borrower, Tschannen-Omaha, L.L.C., by NorthMarq through its affiliate AmeriSphere Multifamily Finance, LLC, a Fannie Mae DUS Lender.

The new project, the Bakken Oil Express Rail Hub, is connected to an existing regional oil pipeline and is currently accepting oil by trucks and pipelines. It began unit train loading and shipping operations Nov. 1.

The first phase of the terminal will include two rail loops, each about 8,000 feet long, and 210,000 barrels of tankage. It will also include a truck center with six independent bays. Initial loading capacity will be more than 100,000 barrels of oil a day. Additional development will provide the facility with an output of more than 250,000 barrels a day.

In October, the delinquency rate for U.S. commercial real estate loans in CMBS moved up 21 basis points to 9.77 percent reports Trepp. The CMBS delinquency rate is now at its second highest level ever. Only the 9.88 percent reading in July 2011 was higher.

After experiencing a big dip in the delinquency rate in August, the rate has now increased for two straight months.

Trepp reported last month that the tone in the CMBS market had been extremely negative since the beginning of the summer. CMBS investors watched as spreads rose sharply and lenders retrenched from making new loans. Many CMBS investors began to whisper that the impressive rally in CMBS from mid-2010 through May 2011 had taken the market too far, too fast. At the same time, commercial real estate professionals made similar comments about the lofty pricing of trophy properties in the U.S. earlier this year.

This negative sentiment continued for the better part of October. Word of layoffs at origination and trading shops on Wall Street jolted the market further. Spreads continued to race upward–ultimately hitting their highest levels since mid-2010. Researchers at some investment banks offered very bearish predictions for the levels of CMBS issuance in 2012.

With a bevy of 2007-originated five-year loans coming due in 2012, the hope that new CMBS issuance would provide a safety valve of sorts for commercial real estate borrowers seemed more and more remote.

The market was granted a big reprieve late in October when a European bailout program was announced. The news lifted virtually all U.S. equity and debt markets and CMBS was no exception. The announcement helped push CMBS spreads sharply lower and increased hope that the worst was behind the market for the time being.

However, as Greece now pledged to hold a referendum on the bailout program, its future has become murky. Markets have reacted with caution once again as they wait for the European drama to play out.
The Numbers: 

• Overall U.S. delinquency rate creeps up to 9.77%, up 21 basis points
• Percentage of loans 30+ days delinquent or in foreclosure: October: 9.77% | September: 9.56% | August: 9.52%
• If defeased loans were taken out of the equation, the overall delinquency rate would be 10.24%, up 22 basis points
• Percentage of loans seriously delinquent (60+ days delinquent, in foreclosure, REO or non-performing balloons) is at 9.21%, up 26 basis points.
• One year ago, the overall U.S. delinquency rate was 8.58%
• Six months ago, the overall U.S. delinquency rate was 9.65%
• One year ago, the rate of U.S. loans seriously delinquent was 7.96%
• Six months ago, the rate of U.S. loans seriously delinquent was 8.90%

The National Council of Real Estate Investment Fiduciaries has reported that its National Property Index recorded its seventh consecutive quarter of positive total return in the third quarter of 2011. Total returns for the third quarter were 3.30 percent; comprised of a 1.46 percent income return and a 1.83 percent capital appreciation return.

However, despite the positive momentum, returns were 64 basis points lower than last quarter.

The NPI consists of 6,489 investment-grade, non-agricultural, income-producing properties consisting of apartments, office, retail, industrial and hotels, with an assessed value of $272 billion.

All five property sectors were positive for the quarter as were each of the four regions.

Apartments were the best performing sector again this quarter after being outpaced by industrial in the second quarter. Retail was a close second with a total return of 3.58 percent, two basis points behind apartment’s 3.60 percent. The industrial sector continued its rebound with a total return of 3.39 percent.

Regionally, the West’s 3.77 percent was the best performing led by the Pacific division’s 3.94 percent total return. The South was the second best region at 3.20 percent. Returns in the West were led by retail, which had a 4.37 percent total return. The Midwest experienced returns of 2.96 percent, bringing the one-year total to 13 percent.

The past quarter also brought improvements in some of the fundamentals as occupancy rates improved from 88.3 percent to 88.7 percent. The report states that this activity may have triggered cap rates to continue to compress as they fell to 5.8 percent.

However, as some fundamentals are improving, rents still seem to be stagnant. In fact, NOI declined in the third quarter, dropping 1.2 percent after rising 3.2 percent the previous quarter.

“One of the things that may be the cause of this is that even though leases were signed, landlords are still giving free rent,” said Jeff Havsy, director of research for NCREIF.

Havsy says that the make -up of the property mixed changed somewhat in the third quarter as well as NCREIF added more industrial buildings to the portfolio. Industrial facilities tend to yield lower rents, which may have skewed the numbers.

The majority of properties in the index are higher-end, class A facilities that attract institutional investors. The NPI reflects that trends that have been present in the overall market. As investment activity has picked up, investors are chasing quality property, creating a bifurcated market. As dollars flock to core properties, the fundamentals in that market continue to improve. Yet with few investors willing to take on value-added properties right now, the non-core market continues to trend downward.

The outlook is much more positive for core real estate, says Havsy.

“I am cautiously optimistic that things will continue to slowly improve in the market,” says Havsy.  “The leasing activity could be in anticipation of an increase in future income streams. Owners are seeing positive signs out there and we might start to see free rent burn off.”

Aries Capital provided the borrower with multiple loan solutions including a CMBS loan, a hybrid CMBS/Bridge loan, and a floating rate loan. Ultimately the borrower selected the floating rate loan, and swapped out $27 million into a five-year fixed rate. The remaining balance of the loan is pre-payable without penalty in the event the tenant exercises its purchase option.  The blended rate was priced at 4.19 percent.

The 41-story, 456,000 square foot office property is centrally located in the heart of Chicago’s financial district. It is  adjacent to the Federal Government Core, a multi-building area including federal courts and agency offices. Tenants of the Class B office property include the Club Quarters Hotel, The University of Chicago Graduate School of Business, Northwestern University, Starbucks, Elephant & Castle Pub and Chase Bank.