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Real Estate Journal — Fall Preview — September 25 - October 15, 2015 — 11C
M id A tlantic
F inance
By Brent Truscott, Bloomfield Capital Finding investment opportunities in a rising commercial real estate market
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drive investment opportuni- ties in an upward trending real estate cycle is maturing legacy CMBS debt. According to Trepp, a provider of CMBS analytics and data, starting in 2015 and continuing through 2017, more than $350 bil- lion in CMBS loans will ma- ture. That amount of maturing CMBS debt is over 2.5 times the amount that matured from 2012 to 2014. This does not ac- count for all non-CMBS debt, which will be maturing during the same time period (CMBS debt only represents approxi- mately 25% of all commercial
real estate debt outstanding). These CMBS loans were primarily originated in the hypercompetitive financing market that spanned from 2005 to 2007. The securitized loans were typically interest-only financing with loan-to-value (LTV) levels often exceeding 80% at origination. Given such loose original underwriting standards, a majority of these loans will not be refinancable at their existing debt levels. Trepp predicts that almost 20% of the commercial mortgages matur- ing through 2017 will require additional capital.
The lenders holding these overvalued loans will seek one of the following outcomes: (1) right-size the loan balance at maturity through a large equity infusion by the borrower (as- suming an extension is enter- tained by the current lender), (2) foreclose on the loan and sell the underlying collateral or (3) sell the loan at the maximum price attainable (oftentimes at a discount to par value). Each of these resolutions allows well-capitalized borrowers and third-party buyers alike to purchase quality real estate or real estate debt at significant
discounts to legacy value. Investors need to be creative in sourcing and financing com- mercial real estate investments when those opportunities may not qualify for traditional fi- nancing, but still present sig- nificant upside potential. Time is of the essence and investors need a nimble capital partner when pursuing fast moving and complicated transactions. Do your homework, get references, and make sure you are deal- ing with reliable partners that have a verifiable track record. Brent Truscott is a part- ner at Bloomfield Capital. n
t’s been a long road since the dark days of 2008 and 2009, and with the un-
employment rate now at 5.1%, height- ened consum- er confidence and a sharp upward revi- sion of the second quar- ter 2015 GDP
Brent Truscott
to 3.7%, the recovering U.S. economy is slowly accelerat- ing, and showing more signs of normalcy. Similarly positive sentiment can be found in today’s com- mercial real estate sector. Ac- cording to CoStar, total sales of commercial real estate were 30% higher in the first half of 2015 compared to the same period a year ago. Several strong geography’s along the east and wests coasts have already met or exceeded their previous high-water marks from the 2006/2007 commercial real estate peak. These recent rapid increases in sales price have created a high level of dif- ficulty for real estate investors to acquire stabilized assets in primary markets at attractive valuations. The quick turnaround in values, however, has not been uniform. Most traditional insti- tutional investors have primar- ily focused on larger, stabilized class A assets in core, costal markets. But the number of players and amount of capital competing in this segment con- tinues to drive down yield – a sentiment best illustrated by the fact that today’s national average apartment property sale price is now 25.5% above the previous peak in 2006, while core office prices are 22% higher than their pre-crisis peak, according to Moody’s/ RCA CPPI Core Commercial Component Index. When investors choose to ven- ture out of the core markets and expand to the underserved class B/C assets in secondary and tertiary markets, opportuni- ties still abound. These assets, particularly transitional situa- tions under $10 million in the Midwest and southern states tend to face less competition from large institutional equity players and lenders alike. Often times, these investment oppor- tunities are fast moving and require creative equity partners or bridge debt capital solutions. Part of what’s continuing to
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