One might call it a choice opportunity.

As it has with coffee and telephone service, modern life has ushered in a vast array of options for financing real estate, both in terms of how capital is deployed and in whom is supplying those funds. Commercial mortgage backed securities barely existed a decade ago, for example, whereas they now are considered a true competitor to fixed-rate mortgages and other more traditional lending vehicles.

The complexities of financing real estate today have also given growth to a new breed of specialists, investment brokers and advisors who can custom craft loans to meet a borrower’s unique needs. Such expertise is especially necessary given that market conditions can shift virtually overnight, as witnessed by the Russian bond crisis of 1998, when several pending real estate sales imploded upon fears of global economic problems.

“It can be volatile,” Ashworth Mortgage Corp. partner Richard B. Ashworth acknowledged last week. “Things change all the time, and you have to be prepared for it.”

One need only look at recent events to bear that out, with lenders everywhere aggressively chasing office product last summer as rental rates exploded to new highs in both the suburbs and urban centers across the country. Properties with vacancy or leases about to roll were especially in vogue, boosting the appetite for so-called value-added opportunities.

The subsequent reversal of fortune brought on by the collapse of the technology sector has most lenders only willing to provide funds for assets of superior stability. According to Ashworth, it is almost impossible to finance single-tenanted office buildings unless the occupant has unblemished credit, while last year’s industry darling – telecommunications data centers – have fallen off every lender’s radar screen.

Deals Getting Done
Despite the recent upheaval, Ashworth and partner June K. Fish say deals are still getting done, with Ashworth Mortgage having completed numerous placements of late. The company, for example, has aided Everest Partners in financing its purchase of eight properties in Massachusetts and Southern New Hampshire during the past year. The most recent deals include 261 and 267 Boston Post Road in Billerica and Corporate Place, a 94,000-square-foot office complex in Peabody. Ashworth Mortgage provided structured finance with several unique features, including 85 percent loan-to-value in one instance.

Ashworth Mortgage has built its business on the highly technical structured finance placement, but the company has also been able to complete several fixed-rate assignments as well this year. The company has just secured a 10-year, $25.5 million note from New York Life for the purchase of River Ridge Office Park in Norwood, and also recently aided the Grossman Cos. in its $16.4 million acquisition of the Braintree Executive Park in Braintree. The first mortgage financing was obtained from a CMBS lender.

CMBS will continue to grow in popularity, said Ashworth, although he warned it might not be an appropriate financing source for some borrowers. Such loans typically have stiff pre-payment penalties, and are also more difficult to renegotiate should the market suddenly sour. On the plus side, CMBS money tends to be cheaper and the amortization schedule is usually longer than accessing capital from a source such as a life insurance company.

Since the 1998 difficulties, the CMBS market has seen increasing consolidation, with current leaders including Credit Suisse First Boston, Bank of America and UBS Warburg. It also appears that the credit companies which have led the structured finance field are also shrinking, as witnessed by General Electric Capital Corp’s pending acquisition of Heller Financial. Meanwhile, Debis, the structured finance arm of DaimlerChrysler, is said to be on the block.

“There will be less choice,” said Ashworth. “The bigger companies are getting bigger, and a lot of the small and medium-sized companies are getting absorbed.”

Change on a Dime
George J. Fantini Jr. of Fantini & Gorga/iCap Realty Advisors, said the comforting aspect of CMBS has been the lack of delinquencies seen to date. Also, CMBS spreads versus corporate bonds have narrowed significantly in recent months. But those encouraging signs could erode quickly, Fantini said, if nervous investors begin to shy away from the lower-rated classes of CMBS traunches, something which could spook public capital.

“Wall Street can flee pretty quickly if they don’t like what they see,” Fantini said.

The consolidation trend seen with credit companies and CMBS firms has also been occurring in the commercial banking industry, with Massachusetts having lost such leading players as BankBoston, BayBanks and Shawmut to merger-mania. Although that trend has raised concern among some local developers, banks have played a leading role in the most recent wave of commercial construction, one which had been sailing along until the recent economic difficulties.

Fleet Financial Corp., for example, led a consortium of banks in providing the $307 million construction loan for the Ritz Carlton Towers, a $500 million mixed-use complex that opened last month across from Boston Common. The bank most recently joined Wells Fargo Real Estate Group in providing $150 million in construction finance for 33 Arch St., the 600,000-square-foot office tower now being built in Downtown Crossing.

The void left by the merger of BankBoston with Fleet Financial has been filled somewhat by outside institutions. Wells Fargo has its own office here now, as does KeyCorp, an Ohio-based bank which hopes to become a leading commercial lender in the Bay State. Also active has been Ireland-based Anglo Irish Bank Corp., which among other deals provided the construction loan for Brighton Landing, a two-building office complex being developed in the Boston neighborhood of Brighton. Anglo Irish Bank also provided both construction and permanent financing for Mount Auburn Place and One Bow St., a pair of office/retail buildings in Cambridge’s Harvard Square.

Anglo Irish Bank Executve Vice President David K. Drumm agreed last week that conditions are markedly worse than they were last year. Office buildings with substantial leasing risk are being looked at askanse by lenders, he said, especially since leasing activity has not picked up as anticipated in the third quarter.

Nonetheless, Drumm did stress that his bank, as well as others, continue to do commercial real estate loans in Massachusetts, and feel the long-term outlook is strong. “The real estate business in Boston is not lying down,” he said. “We are moving forward.”

Currently, capital is especially focused on the perennially strong multi-family market, with Fantini recounting how one suburban apartment development his firm represents has been inundated with financial suitors, including CMBS players, banks, life insurers and pension funds.

“The lenders were clawing at each other trying to do the deal,” he said. “It was amazing to see the level of interest.”

On the other end of the spectrum is the hospitality sector, an arena which had been struggling for some time, and may now have been further damaged by this month’s attack on the World Trade Center in New York City. “To get a hotel financed right now is going to take a barrel of equity,” said Fantini. “It will be very difficult to do.”

In general, however, Fantini said conditions are not be as bad as they may seem, maintaining that market fundamentals remain relatively strong. One reason, he said, is that lenders have been much more disciplined in underwriting deals than they were in the early 1990s, helping to curb overbuilding.

“It’s very encouraging, because virtually all lenders are doing well,” Fantini said. “On balance, things continue to be pretty darn good.”

Drumm concurred with that outlook. “For the banks in this town, our loan books are in very good condition,” he said. “It never got wild like it did 10 years ago.”