A bright sign: Some RE firms get financing

"Signs have emerged in recent weeks that money is headed back into commercial real estate in Philadelphia as properties and companies were able to arrange the financial infusions they sought.

The transactions range from mega to small, and point to a subdued return of capital to the market.

For example, Pennsylvania Real Estate Investment Trust closed on a $670 million loan and line of credit and Berkadia Commercial Mortgage in Horsham helped refinance $17.5 million on a shopping center in Northeast Philadelphia and $3 million for an industrial building in Delaware County. The owner of 1601 Market St. managed to line up a $61 million loan for the Center City office building, and Keystone Property Group refinanced $53.5 million on an office complex through one of the first commercial mortgage-backed securities (CMBS) deals to get done in two years.

“We’re seeing a lot of lenders who were active on the capital market side come back in if they didn’t get out or go out of business,” said Matt Pestronk, managing director at Ackman-Ziff Real Estate Group, which helped arranged the Keystone Property transaction. “A lot of people see the world isn’t coming to an end. People are making loans but on things they are able to live with.”

That means stable properties in good locations and little to no vacancy exposure.

Northmarq Capital, a real estate investment banking firm, has seen an uptick in activity with most of its refinancings and smaller transactions, said M. Walter D’Alessio, vice chairman of the company.

“Generally speaking, this has been a pretty attractive turnaround year for us,” D’Alessio said, noting the dearth of deals during the past two years. “There’s more optimism.”

While there may be more confidence in the market, these deals aren’t easy to get done. Keystone’s deal took five months to close. PREIT’s got done but with stricter terms than the company had before.

For example, what was once an unsecured credit facility has now became secured, and the Philadelphia company that owns regional shopping malls must make $33 million payments on its borrowings each year for the next three years. Where the company previously had more term loan and less revolving credit, that also changed.

“We did extraordinarily well and have the financial flexibility to weather this stormy market,” said Ed Glickman, president of PREIT.

Glickman attributed the company’s ability to line up such a large transaction to its longstanding relationships with its lenders and PREIT’s track record.

“It’s better to stay with and support the borrower than end up with foreclosed assets, especially when the markets are illiquid as they are today,” he said.

While PREIT and the others were able to refinance, not everyone is as successful.

Orleans Homebuilders Inc. voluntarily filed March 1 for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court in Delaware, after failing to successfully negotiate an extension on a $350 million line of credit. And just because Keystone Property managed to get a CMBS deal doesn’t mean bond financing is back to where it was before the recession.

“I think it will come back slowly, but it’s going to be baby steps,” said Brad Krouse, who heads the real estate department at Klehr Harrison law firm and was involved in the transaction. “It’s not going to come back the way it was. The world has changed a bit.”