The consensus among area real estate experts is that yes, financing is available, but there is often a dear price to pay and that is spelled E-Q-U-I-T-Y.

"It's 1996 for everything you are buying except real estate," said Norman Sturner, a general partner in Murray Hill Properties. "There are good properties out there but you have to come in with this tremendous traunch of equity."

To combat financing problems about 80 lenders heard an upbeat view of New York City's real estate economy from brokers, tenants and city boosters at an exclusive breakfast meeting held at the Harvard Club earlier this month.

The meeting was organized by Leslie Himmel, a partner in Himmel + Meringoff Properties, and Michael Cohen of Williams & Co., under the auspices of the Real Estate Board of New York's credit crisis sub-committee.

REBNY chair, developer Bernard Mendik told the group - that included some property owners hoping to tap a financial spring - that the city has cooperated by committing to holding the line on real estate taxes and by working with owners to create economic development programs such as the one that targets Downtown Lower Manhattan's outdated office properties.

With every single dollar increase in rents going directly to the bottom line, Mendik told lenders, "Your collateral will be safe and you can lend more money."

Other speakers included Peter Hauspurg, chairman of Eastern Consolidated Properties; Rosemary Scanlon, deputy state controller for New York City; Brian Schwagerl, head of real estate for Hearst publishing; and Robert L. Freedman, a Williams broker.

Himmel said that afterward, they got feedback from these major lenders that they weren't aware of the changes being made in the city's business community.

"The lenders are seeing there is all new capital and all new lenders coming in to take their places," Himmel added.

Money for the most part is available at higher interest payments and for shorter terms, but above all, more equity is required, either through an equity participation-type loan or an equity partner.

For bankers like Atwood "Woody" Collins, 3rd, president and CEO of East New York Savings Bank, owners with equity at risk become good loan prospects.

"The problem comes when the banks cross that line and have so much of the financing they become the equity owners," he explained.

There is also money available through the securitization process, but investor Allan Riley notes, "the problem with it is that it's not always so quick."

Because of tax law and other changes, capital is also no longer coming from unsophisticated investors as it did in the 1980s.

"Lenders are not giving loans to one-time buyers who are not established," said Himmel, glad, she says, to have survived the downturn and to be in an established company filling out applications for loans again.

"There are no more dentists and doctors, and no more syndications," agreed Bernard Bushell a partner in the Bernard Financial Group. "Those days are over."

Bushell says foreigners, so recently a source of cash, are cautious and want more visible types of properties, but "the big win is usually in the backyard 'B'-type properties."

Due to the proliferation of vulture and opportunity funds along with private sophisticated investor capital, there appears to be no shortage of equity available for the well - positioned project, as long as you are willing to pay for it.

"We are not in a credit crunch. That has turned for most segments of the market," said real estate attorney Fred Weber, a partner with Weil Gotshal & Manges whose firm represents a number of institutions and conduits as well as investors and has introduced clients both ways.

Weber agrees that office product still lags but on the residential, industrial and retail "it is once again a liquid market."

The biggest problem, buyers say, is finding viable projects.

Bushell says everyone wants a building that doesn't have a steady return but has potential.

"You have to have things in the pipeline," said Adam Rose of Rose Associates, one of the prominent real estate families in New York.

"There is financing - both debt and equity is available - although the percentage of equity required is certainly larger than it used to be," said Rose. "But we have investors who were happy in the past and don't have that problem. The difficulty is finding viable projects."

Major real estate families like the Roses are getting loans based on their balance sheets while real estate investment trusts (REITs) can write checks. But for most investors, that "viable project" also has to be through the lender's eyes, complained Sturner.

"Walking in for $25 million, and hoping to get a 70 to 80 [percent loan] is out of the question. It doesn't exist," Sturner said.

When the lenders run the numbers, he explained, "If you have a $5 million NOI [net operating income], which should get you $40 million, they say they will only give you $20 [million]. There is a discount for vacancy, a discount for rollover, a discount for everything."

The lenders also worry about the next mortgagee taking them out in the future and end up getting neurotic about the current borrower's lease expirations.

"If it's New York and commercial and not triple A credit and not 57th and Park there are more discounts," Sturner said. "You have to come in with more and more equity or a deep pocket partner or you can't buy property." There is also no such thing as a non-recourse loan, said real estate attorney Jeffrey Moerdler, a partner with Lowenthal Landau Fischer & Bring, who is also a member of the New York State Banking Board.

"I'm seeing commercial lending transactions for our clients but the requirements are different," said Moerdler. "There is a standard list of carve-outs from recourse. You can get today's version and get limited recourse and recourse, but loan to value ratios are lower, banks are more careful, regulators are looking more carefully, and the bank's auditors are watching more carefully."

Banker Collins agrees that while financing is readily available because of the healthier real estate climate, what is different is the more stringent underwriting criteria.

"People are using the experience of the economic cycle and are building that into the cash flow models," explained Collins, accounting for some of Sturner's complaints. "We can no longer take the first year's [leasing] assumption and expect it will go on in perpetuity."

That means they will mirror what the residential cooperatives have been forced to do by accountants and take into account reserve money for repairs.

The banks will model the cash flows to the reality of the rent rolls, says Collins, allowing for tenant improvements, leasing commissions, tenant refit and lobby and elevator cab refit before they assume those costs will be covered by rapidly rising rent rolls.

For the residential buildings, he said, they will take into account windows, roofs, elevators and the like.

The insurance companies have also undergone new rules, and the overseer association ranks the amount of mortgages those firms are holding versus securities and other investments.

"They are very strict as far as reserves," said Riley. "But if they relax those [rules] then there will be more insurance money."

While there are new sources of capital that will provide equity and perhaps take a piece of your pie, Moerdler says, "if you only want debt on the property the total pool of funds is smaller than before."

Since many lending rates are keyed to basis points above Treasury notes and bonds if there is no increase in Treasury rates, Riley believes there will be more lending.

"My own guess is that unless we get a big uptick on Treasury rates, people will lend more on real estate because they can get more interest."

Bushell says there is not a lending problem but more often a problem generating capital from an equity source that comes in with you and shares the risk.

Convertible and participating loans, and so-called lenders of last resort are all more popular today, Moerdler said.

These money lenders are acting like the corporate mezzanine lender but are not as institutionalized. They are also getting more of everything with rates of 14 to 16 and in some cases 18 percent, and grabbing 2 to 8 points with a short maturity of a year or two.

"Some have other people's money and since they are already in the real estate business, are willing to take the risk," Moerdler observed.

Arthur Stern, chair of Cogswell Realty, sees a "whole slew" of lending companies and quasi-banks that are coming out with mezzanine and bridge loans where they take participation and quasi-equity interest and convertible equity interest that were not available a couple of years ago.

The quasi-second loan would stand behind the first, while the quasi-equity are superior in interest to any equity that any investor might put up. "It can take different financial shape," explained Stern.

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