Commercial Real Estate Capital Markets are Liquid; Development Accelerates During 2015

By Scott Lynn

Commercial real estate capital markets have gone full cycle since the depths of the Great Recession. Capital providers are now considering a wide variety of property types and transaction structures. The market is being driven by an abundance of favorably priced fixed or floating debt alternatives for income properties. 2015 was the fourth straight year of record high new CMBS and REIT Bond issuance. Institutions and Private Equity Investors continue to be flush with cash and eager to pursue new investment opportunities.  The capital markets are robust.

Commercial Real Estate Capital Markets

Lenders and capital providers pushing for extra yield/return are committing to construction and development deals. Over 70% of our 2015 production volume involved projects with a ground-up construction or redevelopment component. Capital providers from all corners of the globe and the game have returned to the market, including local, regional, national and international banks who have expanded their views of what they will consider while remaining prudent with respect to leverage.  Likewise, equity investors considering development deals as prices for “Value Add” opportunities have accelerated given the abundance of liquidity.

Notwithstanding recent interest rate headwinds, capital markets have remained stable enough to continue to allow borrowers to lock up favorably priced debt. Borrowers and investors have plenty of options when considering long-term financing with CMBS, life companies, banks and credit unions leading the charge on the most aggressive programs from a leverage or cost-of-capital standpoint.

During 2015, Metropolitan Capital Advisors arranged over $600,000,000 of new debt and equity transactions, our biggest year since 2006 signaling that the market has cycled back to an upswing over the past decade. MCA completed 83 assignments during 2015 that were placed with 37 different capital providers. Over $370,000,000 of this transaction volume was funded for development deals including urban mixed-use, hotels, office, senior living, medical, retail and single family lots. Geographic dispersion of our completed transactions was as widely diversified as the product type with almost 70% of our business closed outside of Texas.

As we enter 2016, MCA will celebrate its 24th year of continuous operation with over $12 billion of closed transactions since inception. MCA is a member of the Real Estate Capital Alliance (RECA), an association of eighteen real estate finance firms across the U.S. that expands our access to capital and increases our ability to execute assignments nationwide.

We thank our clients and capital providers for a successful 2015 and look forward to working with you throughout the upcoming year.

The author, Scott Lynn, is the founding principal of MCA. Email Scott at slynn@metcapital.com.

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