Madison Realty Capital - A Private Commercial Lender

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NEW YORK; June 22, 2007 — Mezzanine and bridge lenders are seeing a big increase in inquiries from borrowers as a result of a tightening of underwriting standards among commercial mortgage-backed securities and other commercial real estate lenders. More stringent requirements from the rating agencies are making it more expensive for conduits to securitize subordinate debt, said Bruce Batkin, president of New York-based Terra Capital Partners , which provides mezzanine debt, preferred equity and equity to borrowers.

Terra is seeing borrowers who have entered into a contract to acquire a property prior to the tightened underwriting standards who need additional capital to make up the difference between the first mortgage and their equity. "This puts us into a positive position because mortgage proceeds from first mortgages are lower," Batkin said. So far, the firm hasn't seen substantial changes in pricing but Batkin noted that there is some upward momentum.

Billy Procida, president of Palisades, N.J.-based Palisades Financial, said his firm is looking at 100 deals right now, with an emphasis on condo developments. When demand for mezzanine loans heated up, Wall Street threw money at the market and spreads tightened, pushing out the entrepreneurial opportunity funds. Now Wall Street is pulling back just as fast from mezzanine lending as the markets have become more turbulent. "The good news is that the non-Wall Street entrepreneurial mezzanine lenders should catch bigger spreads. Wall Street will then watch us make money and realize that they have to get back in. Then Wall Street will come back and throw too much money at the market again and spreads will tighten," he said, adding that this won't happen for at least a year.

About Madison Realty Capital
Madison Realty Capital has seen a 20% to 30% increase in inquiries, said Josh Zegen, co-founder and managing partner. The firm specializes in bridge loans of $1 million to $50 million and, as a balance sheet lender, it is not constrained by the conduit or b-piece market. Madison has about $350 million of loans on its books and charges interest rates of 9% to 13%.

The company recently funded a $20 million loan on a 600-unit, 90% occupied apartment complex in Texas that had been rejected by the conduit lenders because of some relatively minor issues. "Six months ago that loan would have been financed by a Wall Street conduit," Zegen said, adding that the borrower now needed a short-term bridge loan. "That kind of loan is now coming to us because the b-piece buyers are kicking loans out again."

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