2016 is proving to be the year of shifting sands in capital markets. As I covered closely throughout the year, the CMBS market has been nothing short of a whipsaw. As 2015 drew to a close and we entered 2016, most borrowers had left securitization for dead, a victim of shaky world markets (think oil crash) and over regulation that make it impossible to do business (think Dodd-Frank). As they always do, the Wall Street guys figured a “work around” and we enter the fourth quarter quoting cash-out CMBS loans with coupons between 3.90% and 4.25%, multiple years of interest-only, and best of all, easy closings.
Meanwhile, back in the world of commercial banking, we just wrapped up collecting bids for a refinance assignment on behalf of one of our best clients. The client was averse to CMBS and was looking for a cash-out balance sheet loan, from a bank, non-recourse. Upon presented the offers the client seemed disappointed and we discussed the market. He noted that it seemed like banks have pulled back. My response was that we are doing as many development loans as we are permanent loans, but banks are not making “crazy” loans like they were maybe twelve or so months ago. If you read some market commentary, you would think development financing is becoming downright hard to get.
Certainly things have shifted around substantially in terms of what the “hot” type of money may be over the course of the year, but there is far more good news than bad for borrowers. There are multiple quality sources for well thought out loan requests across just about all asset classes and loan types. Hopefully what we are seeing is a mature state of the capital markets as lenders adopt to the new regulatory landscape. A little tempering will help extend the recovery and the good times real estate investors are currently experiencing.
R. Brenner Green is a 18 year veteran in commercial real estate finance and President of Real Property Capital, Inc., a full service commercial mortgage banking firm based in the Philadelphia suburbs.