Report from 2017 MBA CREF

The 2017 Mortgage Bankers Association Commercial Real Estate Finance convention was held in San Diego this week. GSP sent our usual contingent of about 30 brokers and we met with 35 lenders and held countless informal meetings. The mood continues to be upbeat for the capital markets and here are some of my observations for trends in the capital markets for 2017. Banks are highly regulated (especially the money center, “too big to fail” top-tier banks), as they pull back on lending construction loans, under stricter guidelines. But many are offering bridge loan programs, often on non-recourse basis. Life Companies have plenty of capital to inject into the market this year. In fact, many are increasing their allocations for 2017 with most groups lending at around 65% LTV with spreads (for 10 year terms) ranging from T + 130 to T+240, depending on quality and leverage. Shorter and longer terms are available and some sponsors are locking in 15, 20, or even 30 year fixed rates now, especially with the recent uptick in Treasuries. Short term fixed and floating rate loans are also available and we’ve seen many branching out with creative bridge lending platforms. Debt Funds are also offering a massive supply of capital (both levered and unlevered). These unregulated lenders have plenty of competition for “light” and “heavy” bridge reposition loans from $5,000,000 to over $100,000,000, up to 80% of cost and beyond. Some are not shying away from heavy bridge or major renovation opportunities. Many are offering non-recourse money available for assets with zero cash flow going in. CMBS players seem to have decreased, relative to recent years, due to new regulations and lower profit margins. However, there is still plenty of healthy competition. Spreads are still very tight as bond buyers seem to like the “skin in the game” required by new risk retention rules. Rating agencies are closely watching hotel and retail underwriting during this cycle. New full leverage loans are being originated at rates as low as 210 to 220 over 10 year Swaps or all-in rates of about 4.50%. The “wall of maturities” featuring loosely underwritten loans originated back in 2007 (many with 10 years of IO) are often requiring new equity injections due to stricter underwriting standards. Mezzanine and Preferred Equity are offered by debt funds in form of secondary financing, in search of high yields, both for stabilized and transitional properties. stay tuned.    David R. Pascale, Jr.