Lender concerns remain over retail properties

Lenders remain concerned about multitenant property fundamentals, while a lack of transactions in most markets makes pricing difficult to determine. Loan-to-value ratios of 55% or 60% on shopping center loans are common, with a maximum LTV of 65% possible for grocery- or drugstore-anchored properties.

All-in rates start at about 7% for three- to five-year loans and range from 7.5% to 8.3% for 10-year deals. Debt-service coverage ratios seldom fall to less than 1.4x.

Commercial banks are the most active lenders. No new CMBS have been issued this year, but spreads on mortgage bonds have narrowed, a promising sign. In addition, retail REIT Developers Diversified is assembling a CMBS issue utilizing the government’s Term Asset-Backed Securities Loan Facility. A successful execution of this deal may help to restore momentum in the CMBS market.

Loan terms on single-tenant, net-leased assets can vary widely, but lenders typically prefer properties with corporate leases rather than leases with franchisees. Lenders remain focused on limiting their exposure to single retailers, even national brands with high credit ratings.