Public Private Partnerships…What are They Good For?

By Duke Dennis Over its 25-year operating history, Metropolitan Capital Advisors (MCA) has worked on numerous Public Private Partnership (PPP) transaction financings. PPPs have increasingly Read more

The Power of RECA (Real Estate Capital Alliance)

By: Scott Lynn and Andrew Hanzl Metropolitan Capital Advisors (“MCA”) is a member of the Real Estate Capital Alliance ("RECA"), a professional association of 18 Read more

Getting Creative: HUD 221 (D) (4)

By: Andrew Hanzl Take notice! The landscape is shifting: In anticipation of a market slow-down, commercial real estate lenders are dialing back their leverage and Read more

Private Lenders: Filling the Void

by Roger Wyche There will be approximately $96 billion of CMBS loan expirations during 2017. CMBS lenders, therefore, have been counting on refinancing  Borrowers to Read more

A Bridge (Loan) to Everywhere

By Charley Babb Do you remember John McCain’s famous “Bridge to Nowhere” speech from 2005? As the Arizona Senator, and then later as the Republican Read more

Limited Service Hotels are, well…limited!

By Todd McNeill In recent times, the Limited Service Hotel sector’s reputation has steadily declined in the eyes of the finance industry. Once the darling Read more

TrumpCare and the Effect on Healthcare Commercial Real Estate Market

By Kevan McCormack Since Donald Trump has taken office as President of the United States, he has been very busy “making good” on his campaign Read more

What is the TRUMP Effect on Commercial Real Estate? 4 Key Points

— By Sunny Sajnani There is no doubt that Donald J. Trump in the White House is a game changer for the real estate industry. Read more

Whither CRE Construction Lending?

By: Justin Laub The mantra of commercial real estate developers around the country when speaking of the state of construction lending these days might be: Read more

The Good, the Bad, the Texas High-Speed Rail Line

By Duke Dennis Brady Redwine of Texas Central Partners (TCP) recently addressed a group of Texas A&M real estate professionals about the high-speed rail line Read more

UT Ranked #1 in Commercial Real Estate Yardage

-By Scott Lynn Every fall season, the University of Texas at Austin McCombs Real Estate Finance & Investment Center (REFIC) sponsors the National Real Estate Read more

2017: Not a Forecast (Just Some Thoughts to Ponder) for the CRE Market

By Brandon Wilhite Accurately forecasting the commercial real estate market’s performance is a nearly impossible task. There are far too many variables to assess and Read more

What is PACE Financing?

By Andrew Hanzl Global warming is now a widely accepted concern. As real estate professionals, what role can we play to ensure environmental sustainability? One Read more

Banks Reign in Leverage in Effort to Curb Apartment Construction

By Charley Babb My real estate career spans over three decades. Yet for the very first time, I have witnessed lenders exercise prudence and consequently Read more

Risk Retention in CMBS Starting to “Sink” in

By Todd McNeill The early signals of Risk Retention are reverberating through the commercial real estate capital markets.  Several conduit shops, including MC Five Mile Read more

Risk Retention, Risky Business?

By Scott Lynn Basel III, HVCRE…all these new lending regulations that mean lenders are loaning me less and charging me more. Good grief!!! And now, Read more

It’s Senior Living Not Senior Dying

By Kevan McCormack Everything in life and real estate evolves.  Static retail shopping centers evolved into vibrant entertainment venues where a family could spend an Read more

Metropolitan Capital Advisors Arranges $5,512,000 Acquisition Loan For A 9.77- Acre Lot In Frisco

Metropolitan Capital Advisors, Ltd. (“MCA”) has arranged a land acquisition loan for a 9.77-acre tract located in Frisco, Texas at the northeast corner of Read more

Metropolitan Capital Advisors Arranges A $4,700,000 Construction Loan For UC Health Emergency Room (Arvada)

Metropolitan Capital Advisors, Ltd. (“MCA”) has arranged a $4,700,000 construction loan for UC Health Emergency Room, located in Arvada, Colorado. The 0.69-acre site is Read more

Ground Leases-Friend or Foe?

On the surface, a ground lease seems like a simple concept: a landowner grants permission for a tenant to use their land in exchange Read more

What Do Baby Boomers and Millennials Have In Common & Why It's Important in Commercial Real Estate

By Charley Babb What do Baby Boomers and Millennials have in common? They both like to spend money. While they may spend their money on Read more

The Economic Benefits of Walkability

By: Brandon Wilhite Starting with the Federal-Aid Highway Act of 1956, the way cities were developed in the United States began changing. Although it was Read more

Brexit – Immediate Effect on Commercial Real Estate?

— By Sunny Sajnani In late June 2016, a historic referendum was voted on approving the British withdrawal from the European Union (EU).  The immediate Read more

Hotels: What Inning Are We In?

By: Justin Laub I recently returned from the Urban Land Institute’s national conference on hotels and resorts. The last time ULI held this event was Read more

Choppy CMBS Market Hoping For Resurgence

By Charley Babb CMBS issuance for the first quarter of 2016 was roughly half of the production for the same period in 2015. This has Read more

CMBS

Private Lenders: Filling the Void

by Roger Wyche

There will be approximately $96 billion of CMBS loan expirations during 2017. CMBS lenders, therefore, have been counting on refinancing  Borrowers to increase their loan originations.  However, CMBS lenders are facing challenges getting these deals funded due to several obstacles. Firstly, there is a minimum debt yield ratio (9%) on loans and have stringent risk retention rules for securitizing loan pools; secondly,  many borrowers now potentially have credit issues since their loans may have usually been modified by a Special Servicer to keep their property out of foreclosure.  These workout experiences, which were once new to a lot of CMBS Borrowers, have led Mortgage Bankers to source alternate solutions for their clients with challenging refinancing situations.

In addition, banks have pulled back on construction loans, especially since the summer of 2016.  Historically, banks have provided the bulk of construction loans but developers are now finding it difficult to finance the majority of their projects. It is only the projects with lowest risk that are assured loan funding.  If developers do find a construction loan, the loan is usually limited to 65% loan to cost or less, which increases the equity component in the capital stack.  Other reasons for the slowing down of construction loans are: banks have “maxed” out their construction loan bucket; regulators have increased their reviews of CRE loan portfolios to make sure the banks are not getting “over their skis” in CRE lending; and finally, lenders are saving their “dry powder” for their best deposit clients of the bank.

private lenders

Given the CMBS lenders’  obstacles with refinancing and the banks’ pullbacks in construction lending, private lenders are now moving into these spaces to provide capital and liquidity to borrowers.  The good news is that private lenders are not nearly as highly regulated as CMBS, insurance companies, or bank lenders. They can offer flexible structures on products such as Bridge, Floating Rate, Preferred Equity, and Fixed Rate Loans with competitive pricing.  Other advantages of private lenders include: not being boxed in by underwriting constraints such as debt yields for securitization and having the ability to fund loans that are “out of the box” for conventional lender underwriting requirements.

The term “private lender” does not always infer a more expensive lender or worse yet, a hard money lender. Private lenders play across the capital stack and price their risk accordingly. Recently, I closed a $25,925,000   loan on a newly constructed high-quality multi-family asset that was in the third phase of a four-phase deal. The client wanted maximum loan dollars and was motivated to pay off equity investors accruing a high “Preferred” return payment. However, the challenge was that the property was not fully leased, with a complicated shared amenities agreement, and had no operating history. The loan was placed with a private lender that priced at 395 basis points over 30 day LIBOR. This is just one example of the types of loans that can be structured with a creative private lender.

For clients facing loan maturity, or, looking for a construction loan or additional flexibility in structuring their capital stack, private lenders may provide competitive solutions.

To learn more about private lenders and how they can provide competitive solutions for your project, contact Roger D. Wyche (rwyche@metcapital.com), Senior Director at Metropolitan Capital Advisors.

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2017: Not a Forecast (Just Some Thoughts to Ponder) for the CRE Market

By Brandon Wilhite

Accurately forecasting the commercial real estate market’s performance is a nearly impossible task. There are far too many variables to assess and account for, but that doesn’t mean the effort isn’t a worthwhile endeavor. Taking a step back to examine how we got to where we are today and to consider what may lie ahead can be a useful and insightful exercise.

The current cycle of expansion’s duration, approximately 89 months and counting, has left market participants pondering when the music will finally stop (I’ll spare you the baseball analogy you are all no doubt tired of hearing). Given that expansion cycles have averaged 58 months since World War II, it’s a valid question, but not all cycles are alike. Other factors must be considered, and while duration alone cannot undermine an otherwise healthy market, this long period of expansion has given investors and lenders pause.

Judging by the current state of the market, it seems that, collectively, we have not forgotten the hard lessons learned during the last major economic downturn, often referred to as the Great Recession. Unlike typical market cycles, which often end in overbuilding that results in increasing vacancy, decreasing rents, and lower valuations, fundamentals are mostly good across the country. Factors contributing to healthy fundamentals include lenders scaling back construction lending, newly implemented federal regulations significantly increasing equity requirements, uncertainty relating to the election and investors taking time-outs to watch and observe how the market will absorb existing construction pipelines. While these factors may be “saving” the market from being overbuilt, they may also be stifling economic growth by preventing fundamentally sound projects from coming to fruition. As new construction inventory gets absorbed and lender balance sheets free up, hopefully more construction capital becomes available to fund good projects.

Additionally, a slowdown in permanent lending markets, particularly CMBS, has contributed to market uncertainty. New risk retention rules from Dodd-Frank are going into effect at a bad time in the market. Morningstar predicts that roughly 40% of the 2007 vintage 10-year CMBS loans coming due in 2017 are too highly leveraged to be refinanced, particularly suburban office and retail assets. Borrowers who are unable to refinance or de-lever may be forced to sell or give the keys back, possibly resulting in significant inventory hitting the market in 2017, thereby putting upward pressure on cap rates in those markets and creating opportunities for would-be buyers. Conversely, borrowers in markets and asset classes that have performed better since 2007, such as multi-family or assets located in supply-constrained urban markets, may be more likely to hold and refinance maturing debt, as replacing yield could prove challenging.

Morningstar Loan-to-Value Ratios_2016 and 2017 CMBS Maturities

Morningstar Loan-to-Value Ratios: 2016 and 2017 CMBS Maturities

If the so-called Trump Rally and market optimism hold, interest rates will likely continue to increase in 2017. While cap rates have shown virtually no correlation with increases in interest rates during this cycle, cap rates will likely eventually succumb to upward interest rate pressure and rise accordingly, as many investors will no longer be able to obtain suitable leverage to finance investments. Keep in mind, however, that the benchmark 10-year US Treasury is still yielding about 60 bps below 2014 highs, so there’s still breathing room for the market to adjust accordingly.

As any real estate professional will tell you, opportunities are born as a result of disruption. There will be headwinds and challenges in any market and 2017 will be no different. Those who can capitalize on the opportunities created will reap the benefits. Metropolitan Capital Advisors (MCA) is looking forward to another exciting year of helping our clients capitalize on market opportunities. The author, Brandon Wilhite, is a senior director in the Dallas office of MCA. Brandon can be reached at (972) 267-0600 or by e-mail at bwilhite@metcapital.com.

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Risk Retention in CMBS Starting to “Sink” in

By Todd McNeill

The early signals of Risk Retention are reverberating through the commercial real estate capital markets.  Several conduit shops, including MC Five Mile BNY Mellon, Redwood have exited the CMBS market. Other prominent shops include Freedom Commercial Real Estate, GE Capital, KGS-Alpha Real Estate and Liberty Island all of whom cited changing regulations and market volatility as the reason for their exit.  On Dec 24th, the Dodd-Frank Risk Retention Act will be in full effect. Every CMBS securitization shall now contain a 5% risk retention piece.  As is the norm on Wall Street, certain traders are attempting to make the best out of a turbulent situation.

The first securitization that had a risk retention piece was in August 2016. It was well received by investors. Three banks, Wells Fargo, Bank of America and Morgan Stanley, chose to retain the risk piece in this offering.  The spreads on all classes of bonds in this securitization traded well below expectations compared to those securitizations that did not comply with risk retention rules.  It appears that CMBS participants with the largest balance sheets (or access to the largest balance sheets) will be the survivors of the new era.  According to Trepp, between November 2016 to June 2017, $12 billion of securitized mortgages will be coming due. If the CMBS lending sector faces a disruption during this period, the consequences could be immense.  The industry is keenly watching these securitizations and working on integrating “best practices” to maximize profits and ensure market stability.

risk-retention-in-cmbs

Large balance sheets isn’t all that the survivors of the Dodd-Frank Risk Retention Rules will possess.   They will also demonstrate the willingness and patience of investors and lenders as they will have to hold these risk retention strips for a minimum of 5 years with no hedging or ability to liquidate.  Currently, there are four different ways to satisfy the Risk Retention:

  1. a bank retains a vertical slice of the capital stack,
  2. a bank retains a horizontal slice of the debt,
  3. a L shaped slice where a bank takes a combined horizontal & vertical slice of the debt and,
  4. Sell to a B-piece investor that retains a horizontal slice.

A new question arises. Will there be a difference in credit quality of deals where risk retention is retained by a bank or sold to a third party B-piece investor? The general consensus is that banks may be more willing to retain risk retention on higher quality pools while selling the risk retention on lower quality pools.  This would be similar to the recent securities completed by Wells, B of A, and Morgan.

For the surviving players in the CMBS market, this may unfairly benefit the giants while harming the smaller contenders.  Walker & Dunlap, Ellington Management, Jefferies LoanCore, Ladder Capital, Rialto Capital and Starwood Mortgage are all exploring how to maximize the risk retention piece of the securitizations.  This gives us insight into who will be prominent entities in the CMBS market in the near future. By February 2017, we predict the market will have better understood who will emerge unscathed. Coincidentally, February 2017 will herald the Mortgage Bankers Association’s annual CREF (Commercial Real Estate Finance) conference. The conference in San Diego, has  traditionally been used to  announce new lending programs and production goals for the forthcoming year.  Till then, the end of the year 2016 has us holding our breath. What will the new year bring? That’s the question on our minds.

The author, Todd McNeill, is a Principal/Director at Metropolitan Capital Advisors in Dallas.  Todd can be reached at tmcneill@metcapital.com.

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