{"id":1004171497,"date":"2017-04-04T10:17:24","date_gmt":"2017-04-04T18:17:24","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004171497"},"modified":"2022-12-08T19:59:14","modified_gmt":"2022-12-09T03:59:14","slug":"qa-keybanks-2017-capital-markets-outlook","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/qa-keybanks-2017-capital-markets-outlook\/","title":{"rendered":"Q&A: KeyBank’s 2017 Capital Markets Outlook"},"content":{"rendered":"

By Sanyu Kyeyune<\/p>\n

\"John

John Hofmann<\/p><\/div>\n

CPE: What market trends have you observed during the past year, and how do you expect those to evolve in the near future?<\/b><\/p>\n

Hofmann: <\/b>One of the more notable things from 2016 was an uptick in international capital flows, on the debt and on the equity side. We\u2019ve been seeing it on the equity side for some time, but it was interesting to see it flow into the debt space. The principals behind that money, they view debt as a late-cycle strategy, where you\u2019re not taking last-dollar equity risk in markets where you\u2019re above peak values.<\/span><\/p>\n

We also saw non-recourse bridge lending\u2013the debt fund product\u2013pick up. In response to that, we also launched our ow<\/span>n higher-levered, non<\/span>-recourse bridge lending program. That space has continued to pick up, as people raise money to capture some of the maturities that will happen in 2017.<\/span><\/p>\n

CPE: What opportunities do you see arising for investors as the rema<\/b>inder of the \u201cWall of Maturities\u201d loans come due?<\/b><\/p>\n

Hofmann: <\/b>I think it\u2019s difficult to say at this point, because you don\u2019t know which borrowers are sitting and willing to inject capital into a property. It\u2019s tough to see exactly what the balance sheet is of the sponsor behind the loans that are coming due. Given the high rate of defeasance we saw with some of the trophy properties that were pegged for 2017 maturity, the loans that are remaining could have some stress. <\/span><\/p>\n

You\u2019ve seen a lot of people take advantage of refinancing and paying the defeasance cost. And since there are some smaller loans in that pool, you\u2019ll have an opportunity for small-balance lenders. It\u2019ll be a great opportunity for CMBS. If there are some leverage issues where people need to right-size, I could see the mezzanine and debt funds playing a role.<\/span><\/p>\n

CPE: What\u2019s your outlook for CMBS?<\/b><\/p>\n

Hofmann: <\/b>We believe that it\u2019s a viable product that will continue to grow. We saw risk retention implemented with the Dodd-Frank regulations at the end of the year, and it didn\u2019t cause much disruption. <\/span><\/p>\n

We\u2019ve seen spreads tighten. We\u2019ve seen borrowers still have access to capital. We\u2019ve seen B-(piece) buyers raise a lot of money for the horizontal strategy, and then you\u2019ve seen folks like ourselves approved to hold a vertical risk retention slice. Getting that regulation behind us and absorbing it and reacting to it gives a better message and more stability to the product, which is often a borrower\u2019s concern.<\/span><\/p>\n

CPE: How would you characterize the competition among lender types, including banks, CMBS, life companies and GSEs?<\/b><\/p>\n

Hofmann: <\/b>We have a unique position because we\u2019re a commercial bank but we touch all of those products with our Fannie (Mae), Freddie (Mac), FHA, CMBS, life company and bridge loan platforms. We have a pretty good pulse as we see those capital flows. Obviously, the GSEs have been trending upward for the past few years, and they had a strong start to this year. We expect that to be a continued theme in 2017. CMBS, we believe, will continue to be viable. Banks provide a lot of liquidity to the market, and borrowers like the cost of capital and flexibility that a bank loan provides. In the long-term commercial space, the life companies will continue to stay steady or increase allocations, focusing on the trophy, best-in-class assets. And then you\u2019ll see CMBS fill in the gaps. <\/span><\/p>\n

CPE: Is loan quality slipping or tightening?<\/b><\/p>\n

Hofmann: <\/b>The markets have done a very good job at staying disciplined.<\/span> At KeyBank, we\u2019re very focused on sponsorship, so we\u2019ll lend in a variety of strategies to people that we have a long-standing, meaningful relationship with. I will say that we haven\u2019t seen credit quality slip because people are very focused on cash flow, on equity and on the credit metrics of the deal. I think that discipline is good for prolonging the cycle.<\/span><\/p>\n

CPE: Where are we in the current real estate cycle?<\/b><\/p>\n

Hofmann: <\/b>We\u2019re 7-plus years into the recovery. At this point, I don\u2019t see any reason why it should be coming to an end any time soon. U.S. real assets are an attractive place for capital, both domestic and international. The economy seems to be on the right track. As far as any warning signs, I don\u2019t think we\u2019re concerned about those at this point.<\/span><\/p>\n

CPE: How is the current regulatory environment impacting capital markets?<\/b><\/p>\n

Hofmann: <\/b>The next 12-18 months will be interesting to see how the new administration handles the regulatory environment. We\u2019ve seen CMBS absorb, adapt and react positively to the regulations that have come in place. Whether there are increased or decreased regulations, it provides an opportunity to private capital. They\u2019re the quickest to react, and they\u2019re able to capitalize on it. As a bank, we feel good about our business and what the future holds for us and the regulatory environment we\u2019ll be in. There will be good opportunities to deploy capital.<\/span><\/p>\n

CPE: What do you perceive as the greatest threat to liquidity?<\/b><\/p>\n

Hofmann: <\/b>The threat is temporary disruption. When things happen internationally or here, there can be temporary dislocation in the capital markets. We\u2019ve seen that over the past few years, but they seem to find an equilibrium again. Depending on if a borrower is facing a maturity or not, those temporary dislocations can cause some noise, and the market reacts, whether buyers or sellers have to come back to the table. Again, they seem temporary: the market finds its footing again and everyone moves forward.<\/span><\/p>\n

CPE: What trends have you noticed in the types of projects being financed?<\/b><\/p>\n

Hofmann: <\/b>We still see a lot of multifamily activity. It\u2019s really the full spectrum for us, since we\u2019re such a relationship-focused bank. Our clients can find value and opportunity in a variety of markets, so we see a variety.<\/span><\/p>\n

We\u2019ve seen a lot of activity in the industrial space, and we like those metrics. As the economy continues to grow, you\u2019ll see demand for office. You\u2019re seeing people focus on a niche product and execute on a strategy. We\u2019re very focused on finding those people.<\/span><\/p>\n

CPE: Tell us more about KeyBank\u2019s non-recourse bridge lending product.<\/b><\/p>\n

We do a lot of recourse bridge lending, but we also made an entry into the non-recourse bridge lending space. It\u2019s another product that our clients were looking for.<\/span><\/p>\n

We\u2019ve been very conscious in building out. The way the bank has worked, we have our balance sheet, and surrounding it are all of our capital markets executions. That way, we really provide the full suite of products and can present those options to clients and be agnostic to what they choose. We felt the non-recourse bridge product really rounded out the suite, and we see a lot of deal flow around it now.<\/span><\/p>\n

CPE: Which capital sources will be most active in distressed assets?<\/b><\/p>\n

Hofmann: <\/b>I think it\u2019ll come down to banks and debt funds. Borrowers with strong bank relationships will tap their bank to buy and reposition an asset, since flexibility will be key. For opportunities that don\u2019t fit the banks, you\u2019ll see the debt funds and the mortgage REITs fill that role. A big theme we see with our borrowers is a desire for flexibility, especially for distressed opportunities. <\/span><\/p>\n

CPE: Is KeyBank active in affordable lending? <\/b><\/p>\n

Hofmann:<\/b> We have spent a lot of time and resources focusing on providing debt to the affordable housing space. We feel strongly about it and have seen a lot of activity around it. The agencies\u2019 mission is very important in providing liquidity to the housing market, and we\u2019re a partner with them in trying to meet that mission.<\/span><\/p>\n

CPE: How has KeyBank leveraged technology?<\/b><\/p>\n

Hofmann:<\/b> Technology is changing extremely fast, so we put a lot of resources behind developing technology. It\u2019s important we stay on top of it. On our originations side, we continue to invest in platforms to streamline our processes and track data to make sure we provide the most accurate due diligence information as we\u2019re underwriting. We also service almost $200 billion in commercial mortgages, and so we\u2019ve continued to really invest in that platform. I think our technology is top-of-the-market, as we provide servicing to the CMBS market, insurance companies, debt funds and other third-party providers.<\/span><\/p>\n

CPE: What\u2019s KeyBank\u2019s competitive advantage?<\/b><\/p>\n

Hofmann: <\/b>Since we offer all the products from balance sheet capital to capital markets,<\/span> we\u2019re very poised to monitor the capital flows. If CMBS slows down, another part of our business picks up and vice versa. We\u2019re extremely relationship-driven, and nothing can replace the value of those relationships. By having a very broad platform, we\u2019re very well positioned to endure changes in capital flows as one source of debt becomes more favorable than another. The capital flows between executions instead of flowing outside the bank.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

John Hofmann oversees originations for KeyBank and lends on a range of strategies, targeting the niche preferences of the firm\u2019s diverse customers. Hofmann shares his bird\u2019s-eye view of commercial real estate lending and the forces that will shape the industry in the coming months.<\/p>\n","protected":false},"author":1245,"featured_media":1004171499,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21825,23891,21742],"tags":[32937,34789,33331],"class_list":["post-1004171497","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","category-national","category-latest","tag-keybank","tag-keybank-real-estate-capital","tag-the-dodd-frank-act"],"acf":[],"yoast_head":"\nQ&A: KeyBank's 2017 Capital Markets Outlook - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/qa-keybanks-2017-capital-markets-outlook\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Q&A: KeyBank's 2017 Capital Markets Outlook\" \/>\n<meta property=\"og:description\" content=\"John Hofmann oversees originations for KeyBank and lends on a range of strategies, targeting the niche preferences of the firm\u2019s diverse customers. 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