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6C — June 23 - July 13, 2017 — Mid-Year Review — M id A tlantic
Real Estate Journal
F inance By Nancy Ferrell, NorthMarq Capital Commercial real estate lending Mid-Year 2017
T
deals to the easier execution of Life Company lenders. • Commercial property sales pace has slowed down. More buyers believe prices have peaked nationally in- cluding the Mid-Atlantic region. Property owners no longer have cap rate com- pression to help them in the investment sales market. The new cap rate trend is stable to upward in most as- set sales. • Other important capital sources are the GSEs: Fred- die Mac, Fannie Mae, and FHA. Combined, Freddie Mac
he current lending market sentiment for commercial real es-
economy assumes the Federal Reserve will increase rates. However, rates have been de- clining in the second quarter making it difficult to project higher interest rates for the second half of 2017. • Life Insurance lenders desire lower-leverage, high- er-quality, mortgage loans, eschewing risk for safety. For example, 70 percent LTV lenders last year want 65 per- cent LTV deals today. Sixty- five percent LTV last year is 60 percent today with all lenders widening cap rates. • The first quarter saw a
fall out of many CMBS plat- forms benefiting the primary CMBS lenders. After 2016’s high spreads and uncertainty about risk retention, CMBS lenders are now offering low- er spreads. Many solved risk retention by retaining their own “B” pieces. Like others, CMBS is more concerned about credit quality and le- verage. Seventy-five percent LTV last year is 70 percent or less today. Lower stressed LTV ratios and increased Debt Yield requirements are commonplace. Conservative CMBS parameters will divert
and Fannie Mae financed $30+/- billion in multi-family loans in the first quarter. Al- though lower than 1st quar- ter 2016, GSEs are the most active multifamily lenders. Agencies are taking a mea- sured approach to lending in this current cycle. • Regional banks and credit unions have tightened under- writing based on the Basel III regulations and economic concerns. Even so, regionals banks have been very com- petitive in the CRE perma- nent loan space and will add recourse to mitigate risk. • Bridge loans, mezz debt and preferred equity from private debt/equity firms are available now than at any time in the recent past. These investments provide dollars over 65-75 percent of the capital stack. • Unlike past cycles, bor- rowers are more disciplined when financing a property today. Life insurance companies: Generally quoting spreads of 160-200 over US Treasur- ies for sub 65% LTV loans. Terms are 5-10 years with longer loans available, al- though pricing jumps up significantly. CMBS: Loans are tied to a 10 year term/30 year amorti- zation. Interest only is avail- able if the property warrants. Pricing is 200-245 over swaps with 70-75 percent LTV ra- tios with tighter spreads sub 65 percent LTV deals. Multifamily lenders includ- ing life and agencies: Pricing is 175-225 over US Treasur- ies depending on leverage and DSC ratios. Loan terms are 5-10 years for agencies except for longer terms with FHA and life companies. Some lenders are about class A apartments and many feel class B properties are more dependable. A common theme among lenders is the desire to main- tain discipline in loan under- writing metrics. Investors or borrowers will continue to find capital to meet financ- ing needs. However, expect greater scrutiny and less desire to finance “cash out” when financing in the next two quarters. Nancy Ferrell is senior vice president and manag- ing director of NorthMarq Capital’s Baltimore Re- gional Office. n
tate remains opt imi s t i c . Life Compa- nies, CMBS, Bridge and Mezz Debt, Freddie Mac, Fannie Mae a n d F H A hav e s e en
Nancy Ferrell
steady deal flow for the first half of 2017. What is un- certain is if this optimism continues. • Job growth and a stable
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