M id A tlantic Real Estate Journal — Spring Preview — April 2023 — 7A
www.marej.com
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By Brenner Green, Real Property Capital, Inc. The Current Commercial Mortgage Market
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he current lending envi - ronment is as fragment - ed of an environment
is Wall Street paper. By that I mean CMBS and non-recourse bridge loans that are sold into CLO’s. For quality multifamily, 10 years interest-only is possi - ble at as high as 70% LTV. This goes a long way to deal with some of those debt service cov - erage issues people are having on their multifamily projects coming to stabilization. Cash out for short-term ownership is also no problem for strong deals and while the market is volatile in terms of rate, rates in the mid 5% range are en - tirely possible, there is strong demand and strong execution
happening in the market. Office loans are still possible, for now, but are conservatively under - written. As predicted by the author last year, bank spreads have widened based on cost of funds and CMBS spreads have run in after a six-month credit freeze last year and the fact that we are in a functioning economy where investors need to buy this paper, eventually. It is as strong of a market as well, maybe 2006. This type of volatility is where money is made in any market, and a shakeup was needed in commercial real es -
tate to keep the massive influx of money from spiraling the market into a giant bubble (as opposed to a small one). How deep it goes will depend on how long rates take to adjust to sustainable levels. I don’t know what the definition of “sustain - able” is, but it is definitely not a 450-basis point premium be - tween the Prime Rate and the 10-year Treasury (8% to 3.5%) which is where we are pres - ently. This becomes less within the control of the Federal Re - serve as the yield curve stays inverted, despite coming down recently. The cost of money
for many banks is very high relative to the 10-year treasury yield. In all, this makes it a great time to shop around for a loan and a great time to take advantage of market volatility in commercial real estate, even if only in the financing side as property values remain in a period of price discovery. R. Brenner Green is a 20-year veteran in commer- cial real estate finance and President of Real Property Capital, Inc., a full-service commercial mortgage bank- ing firm based in the Phila - delphia suburbs. MAREJ
as I have experienced in nearly 25 years in the real es - tate finance business. It is complete - ly different than both the post 9/11 dot.
Brenner Green
com crash and 2008, although there are some similarities to the later which we will get to shortly. So far this year, we have seen a frenzy of activity in construction loan requests and permanent refinancing requests, and we have heard from clients we haven’t spoken to in some time. The reason for this is simple and it’s because there is a game of musical chairs going on in the lend - ing world. In net terms more lenders are exiting the market than entering it, and there is an enormous spread in terms of rates at which different banks are willing to lend. This spread could be as much as 2% for a five-year loan if you take into account a swap rate that could be offered at bank A and a portfolio rate offered at bank B. 5.25-7.25%. Several months ago, there were far more lend - ers willing to lend than there were borrowers looking to bor - row. That range has narrowed quite a bit, with lenders exiting the market or pricing them - selves out of the market daily, and the ones hanging around are looking for deposits. Some of the money center banks are flooded with deposits and need to lend. We are likely at the peak or near the peak in terms of lender pullback. Construction financing for net leased single tenant deals, or suburban multifamily and even for-sale housing is very hot. Price points are key and we are seeing a half dozen or more term sheets for value-oriented projects. Urban luxury multi - family loans are slow to dead and this is as much because of the low cap rates needed to make these deals work, as it is that there is fear of an oversup - ply despite record unit deliver - ies in many cities. To pick on a place, look at the Inner Harbor. Does Baltimore need a dozen cranes in the sky at this stage of the cycle? There will be some issues for sure. The other thing that is hot,
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