6A — April 15 - 28, 2016 — Financial Digest — M id A tlantic

Real Estate Journal


F inancial D igest

.S. Realty Capital has just returned from the Mortgage Bank- U.S. Realty Capital meets face-to-face with lenders at MBA annual conference Commercial Mortgage Update: Interest Rates, Oil and China U Seller Servicers.

the Fed Funds Rate. If there is a temporary inter- ruption in rising interest rates, it may be a good time to lock-in long-term, fixed-rate financing. Even if there is a year or two left on current fixed-rate financ- ing, it may be advantageous to pay a prepayment penalty or pay defeasance in order to obtain new long-term financ- ing at current interest rates. In addition, USRC has over 10 lenders that offer forward rate locks; the forward rate locks are typically 3-6 months but 12 months is available from certain lenders. This is a stra- tegic way to lock-in before rates

move up. The general consensus among lenders is that the first half of 2016 will be active but they are expecting a slowdown in the 3rd quarter as capital tightens due to the implementation of Regu- lation AB and new Risk Reten- tion rules that were passed as part of Dodd-Frank. There is uncertainty with lenders on how they will price to reflect these changes with some saying they may sit out the market for a period of time and see how pricing is impacted by these new regulations. Given some of the unknowns, CMBS spreads have widened

by about 30 basis points. In ad- dition, lenders are pricing over the higher of Swap Spreads or Treasury Yields. The B-Piece buyers for CMBS securitiza- tions are less active than there were six months ago, are being more selective and are demand- ing increased yields. Some smaller CMBS lenders without strong financial backing are freezing their programs tempo- rarily and some have shut down their programs altogether. It appears that 2016 will bring additional consolidation in the CMBS market. Common themes in the capi- tal markets right now are: •Capital remains available and lenders are actively review- ing, quoting and closing deals. •Small balance CMBS ($2mil- lion to $5 million) is available. •CMBS loan maturities in 2016 and 2017 will total over $240 billion and will need to be refinanced; it is estimated that a significant percentage of these loans are impaired. •Forward rate locks are available at varying terms and pricing. •HUD Lenders are quoting and closing long-term, fixed- rate, fully amortizing loans for multifamily, assisted living and skilled nursing. •USRC has access to a small- balance permanent loan pro- gram for multifamily that is more attractive than typical bank financing; non-recourse, fixed rate, 10-year term, 30- year amortization, step-down prepayment and up to 80% loan to value. •Life insurance companies and larger pension funds are active at 60-70% loan to value; many allowmezzanine debt be- hind their first position. There is a strong push for multifam- ily and industrial floating rate bridge loans – including single tenant industrial. Given the volatility in the CMBS market, many expect life companies to be out of money but mid-year making the possibility of a year-end credit crunch more likely. •Non-recourse construction loans at 90% of cost are now available. •There is robust lending activity in non-core, secondary and tertiary markets. •Regulation AB and changes in Risk Retention in the 4th Quarter of 2016 are expected to increase uncertainty with possible tightening of liquidity and increased pricing in the capital markets. n

The general economy, the volatile stock market and the outlook for additional interest rate increases by the Federal Reserve are considerations that are reflected in pricing. In the 4th Quarter of 2015, the Federal Reserve increased the Fed Funds Rate for the first time since 2008. Although the increase was merely 25 basis points, the action created the expectation for further increas- es in 2016. On the flip side, the economic slowdown in China, plummeting oil prices and the resulting global stock volatility may delay further increases in

ers Association (MBA) an- nual conference on commercial real estate financing in Orlan- do. The Conference provided an excellent opportunity for USRC to meet face-to-face with lend- ers from various parts of the country and to receive updates on their programs and pricing firsthand. Lenders ranged from Wall Street to Main Street, including included life insur- ance companies, CMBS lend- ers, specialty funds, pension funds, HUD Lenders, Fannie DUS Lenders and Freddie Mac

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