It's a cautiously optimistic time for commercial real estate investors, who are finding attractive opportunities despite some concerns about market stability. The deals in the New York tri-state area as well as South Florida remain plentiful, and private lenders continue to provide an infusion of turnaround capital in order to take advantage of this environment. But will this trend last, and how will the new administration impact the future of commercial real estate?
In the following Q&A, industry veteran Sanford Herrick, who is the founder and managing principal of commercial real estate investment company Case Real Estate Capital, LLC, discusses the current lending climate and how Case is leveraging opportunities.
Q: How would you describe the commercial real estate market today now that there’s a new administration at the White House?
A: “The markets are still unsettled, but there’s been more optimism since President Trump was elected with his support of deregulation.”
Q: What geographic markets are the best for value-add opportunities right now?
A: “Our firm is very active in the Northeast and Mid-Atlantic, as well as in South Florida. Right now we’re seeing more activity in Florida where there is a lot of demand for money. Whether the demand is reasoned is questionable, but many developers feel if there’s money available, let’s do something with it.”
Q: The amount of newly-raised capital targeting real estate is at near record levels. Do you expect the velocity of deals to remain strong?
A: “There’s a steady stream of money coming into the market with a number of new and seasoned participants managing that money. As a result, deals are more competitive, which in turn, is driving down yields in an environment where there is concern about stability. We’ve had a seven year run of increase in value and there’s some question about how long that can last. We’ve already seen cracks in high-end markets like NYC. The great concern now is how long this money can be reasonably deployed.”
Q: Traditional lenders have become cautious with tighter lending standards. What do you attribute that to?
A: “The banks have lots of issues and are dealing with increased regulations as the regulators want them to have less exposure to real estate. Traditional lenders are stepping back, leaving the market up to private lenders to a great degree.”
Q: Competition to place capital has been strong. How does Case source new opportunities?
A: “We’ve ramped up our investment activities and we project a rise in financing volume. As an originated mortgage lender and a buyer of loans, we pick through the market to find situations that can get us the yields with the safety and timing components that we want. Unfortunately, we’re finding that there are fewer of those deals around compared to a year and a half ago.”
Q. Do you see opportunities in the retail sector?
A. “For the past couple of years, the constant chirp of discussion on e-commerce has continued and grown louder. Most people are taking their business to the internet versus the brick-and-mortar stores, and I think that trend will continue.”
Q: What are the benefits of working with Case?
A: “We can get to a yes very quickly, and we can deploy funds in the $10 million to $30 million range within a month. For example, we did a first mortgage bridge loan on a site in Woodridge, NJ for over $15 million and it took only 33 days from the day it came in to the day it funded. Similarly, our turnaround time was 30 days from origination to closing for a first mortgage loan in Montauk, NY for over $17 million.”
Q: What is the company’s goal for the remainder of 2017?
A: “We are planning an expansion of personnel with plans to hire an acquisition officer and an asset/manager analyst within the next couple of months. Also, as we keep getting more money committed to us from our financial partners, we plan to continue to ramp up investment activities, and respond to the middle market’s need for smart situational capital.”