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20C — June 23 - July 13, 2017 — Mid-Year Review — M id A tlantic
Real Estate Journal
M id -Y ear R eview
By Israel Schubert, Meridian Capital Group The secret to successful loans in today’s challenging market
M id-Atlantic commer- cial real estate has faced some challenges
witnessed a slowdown of sales in New Jersey and Pennsylva- nia given strong pricing that has been achieved across all property types. Many of the market’s usual buyers are now taking a pause or looking elsewhere for greater yield, par- ticularly in other states. This migration has led investors as far as Virginia and Michigan. We have successfully closed a number of the transactions in markets outside the traditional Mid-Atlantic area, for example, we closed an $18.1 million loan for a 360 unit luxury multifam- ily property in Charlotte, NC, called Somerstone at Winding Trails. On the multifamily side, Meridian has been very active in agency lending, closing loans through Fannie Mae, Freddie Mac, and the U.S. Department als who choose to live in the suburbs typically want urban life experiences. The same is to be expected when they pur- chase homes. Millennials are primarily seeking suburban towns near active downtown areas, mimicking urban life. One major characteristic they desire is walkability. While other generations were willing to drive to get around town, millennials prefer the option to walk. Desired characteristics of homes will also differ for the millennial home buyer. One of the changes from prior generations is the desire for open floor plans. Millennials avoid defined rooms, espe- cially formal dining areas, and would rather have flexibility with room design. Addition- ally, open floor plans allow for easier socializing when entertaining. Overall upkeep of a house is another concern for millen- nials. Carpeted floors and big yards can be offputting due to greater maintenance required. As millennials are more bud- get-conscious, energy-efficient appliances are appealing and often touted as one of the most desired features in both areas where middle-market projects are fueling change, and that’s exactly where we want to be.” In addition to the middle- market, where the firm has so successfully grown, it is also beginning to service clients
of Housing and Urban Develop- ment. This group of lenders has allowed us to achieve the best proceeds, interest-only peri- ods, and rates for our clients purchasing and refinancing multifamily properties. For instance, we were in the middle of underwriting a $50 million agency loan when treasury rates crept up. The proceeds were impacted to the point where the client would have struggled to achieve the original outstanding debt. In response Meridian negotiated a significant pricing waiver that dropped the spread by 20 basis points, compensating for the rise in treasuries and maintaining an effective rate from the original quote, with full proceeds. We successfully closed on a transaction that otherwise would have fallen houses and apartments to this generation of home buyers. As the millennial influence continues to impact the rental landscape and homeownership rates on increasing levels, now is the time for property owners and developers to plan and incorporate new ideas so they can stay competitive and at- tractive to this generation for years to come. Adam Holzberg, CPA, MBA, is a senior associate at Sax and a member of the firm’s Real Estate Industry Service Team. He special- izes in audit and account- ing services for property owners, developers and investors. n 1 - Millennials: Breaking theMyths. (2014) Nielsen.com, http://www.nielsen.com/us/en/in- sights/news/2014/millennialsprefer- cities-to-suburbs-subways-to-drive- ways.html 2 - Millennial Myth Buster: Young Americans Do Like the Suburbs. (2016, August 2), CBRE Capital Watch, http://cbre- capitalwatch.com/?p=2422 3 - Zillow’s Housing Confidence Index. (2014, Sept. 22) Will Youthful Exuberance Today Mean More Sales Tomor- row? http://www.zillow.com/research/ housingconfidence- index-sept-2014-7698/ with larger balance loans in the $30 million to $100 million range. Schwartz and Safdie see significant opportunity for continued growth in this area as the construction lending market remains difficult for the majority of developers. n
apart. Overall, lenders are still managing through a highly regulated environment, de- spite potential reforms being proposed by the new adminis- tration. Each day, banks are finding it more challenging to close real estate loans, even with borrowers they’ve known for years. Meridian has been helping borrowers navigate the debt procurement process through our relationships with more than 15 local savings banks. These relationships have been especially helpful on the construction loan side—in past years, it was easier for clients to close their own loans through prior banking relationships. But these banks are no longer able to provide the same financ- ing developers have relied on operations are particularly crucial factors, necessitating careful asset selection and due diligence when considering cold storage investment. Overall, industrial markets in the Mid-Atlantic region and nationally are positioned to perform well for investors. But investment prospects
for years. On the brokerage side, this has allowed us to offer unique financing opportunities, including mezzanine money or debt that will fund the entire capital stack. Recently, we closed an $80 million construction loan in New Jersey. Due to the size of the loan, the developer—who had over three decades’ expe- rience in this market—was struggling to obtain quotes from his existing relationships. Using Meridian’s platform, our brokers negotiated new options and presented three choices, including a conventional con- struction loan, mezzanine fund- ing, and 80% of cost from a debt fund that allowed him to suc- cessfully accomplish his goals. Israel Schubert is senior managing director of Merid- ian Capital Group. n are strongest near densely populated urban areas with strong prospects for sustained economic growth. Matt Sargent is vice pres- ident of asset management at Bentall Kennedy (U.S.) Limited Partnership, with responsibility for indus- trial assets on the East Coast. n
as themarket approaches t h e h a l f - way mark of 2017—name- l y r e c o r d - b r e a k i n g pricing, ris- ing interest r a t e s , and
Israel Schubert
more difficulty sourcing loans in a tightly regulated lending market. Given these trends, prudent investors should con- sider having a brokerage pro- fessional like Meridian Capital Group at the table to make sure they are receiving the best lending terms and conditions they can. While the velocity of deals has increased overall, we have rently, the average age of first-time home buyers is 33 years old. This indicates that the oldest of the millennials are becoming homeowners. The fact that many millenni- als entered the professional world slightly before or during the Great Recession has sig- nificantly stunted their earn- ing potential. Additionally, monthly student loan and rent payments have considerably impacted their ability to save for down payments in the face of rising housing prices. Although temporarily de- layed, homeownership does not appear to be permanently hindered as a result of these factors. According to a survey conducted by Zillow, 54% of millennials plan to buy a home within the next 5 years. 3 House Hunting Wish List Withmillennial home buying potentially around the corner, this generation will impact home buying just as much as they currently impact the rental world. Therefore, it is important to understand what characteristics millennials may desire in their future homes as well. When renting, millenni-
The impact of Millennials on the real estate . . . continued from page 19C
continued from page 7C Infill Industrial offers . . .
It is beneficial to keep in mind these unique character- istics when planning a living environment for Millennials. They’re attracted to clean and simple interior designs with a bright and modern sensibility. Not afraid of color, they will take more risks with bold and bright tones more than any other generation. Open spaces are key and they must be flex- ible and adaptable. No need for a formal office, they will work from any surface. Millennials are socially concerned and environmentally conscious, and look for energy efficient appliances, smart thermostats, etc. The idea of an “Entertain Me” home appeals to their life- Designing for the generations . . . style of hyper-connection and instant gratification. A home wired for tech gadgets, enter- tainment, gaming is expected. Like Baby Boomers, the Millennial generation is posi- tioned as a growing influence in our society. Since their preferences are very different from previous generations, it will be interesting to view their development over time as they move through the life stages. Although our expectations for each generation will continue with the characteristics that define them, it will be interest- ing to witness what transpires moving forward. Richard Gacek is owner and principal designer at Gacek Design Group. n continued from page 9C continued from page 12C By Terri S. Johnson, Capstan Tax . . .
Terri S. Johnson, man- aging partner of Capstan Tax Strategies, works closely with commercial real estate owners, inves- tors, and accounting firms to provide practical, cre- ative, and client-specific engineering-based tax solutions. n
primarily underwriting acqui- sition and development deals.” Added Safdie, “Both the South Bronx and Jersey City have seen a lot of growth and new projects coming to mar- ket in recent years. These are continued from page 14C Filling the void for middle- market construction loans . . .
deal of potential opportunity, and every situation calls for a unique strategy set. Often, collaboration with a third- party consulting firm allows for the development of a comprehensive, customized plan that explores all possible opportunities.
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