{"id":1004180425,"date":"2017-06-14T06:21:41","date_gmt":"2017-06-14T14:21:41","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004180425"},"modified":"2022-12-08T21:54:59","modified_gmt":"2022-12-09T05:54:59","slug":"take-it-to-the-bank","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/take-it-to-the-bank\/","title":{"rendered":"Commercial Banks and the Capital Markets"},"content":{"rendered":"

By Gail Kalinoski<\/p>\n

\"Morgan<\/a>

Morgan Stanley, New York Life and MetLife provided $363.7 million to refinance the Modera Portfolio, six multifamily communities in California, Florida, Massachusetts, New Jersey, Texas and Virginia.<\/p><\/div>\n

As 2017 approaches the midpoint, the capital markets remain bullish on real estate, and commercial banks are among the most active lenders. During the first quarter, for example, their lending accounted for 25.5 percent of loans closed by CBRE Capital Markets, second only to the 34 percent share registered by life companies. Solid as it is, this showing represents a significant decline from the first quarter of 2016, when banks took a 43 percent share of CBRE\u2019s closings. The downshift is not for lack of interest on the banks\u2019 part, however.<\/p>\n

Last year, \u201cthe banks were all viewing commercial real estate lending as a great asset class with risk-adjusted yields that were quite attractive. They wanted to be in the space,\u201d said Brian Stoffers, global president of debt and structured markets for CBRE\u2019s capital markets business. \u201cThe regulators put their foot on the brakes and said, \u2018Not so fast.\u2019\u201dl<\/p>\n

As a result, banks pulled back, especially on construction lending. \u201cThey are still closing, but the change in velocity is palpable,\u201d he said.<\/p>\n

It\u2019s also \u201ca convoluted mess,\u201d according to Alex Inman, a Dallas-based senior vice president for Walker & Dunlop\u2019s Dallas office, who arranges financing from sources including the government-sponsored enterprises, CMBS lenders, banks and life companies. \u201cBanks have interpreted the regulations differently,\u201d he said. \u201cThe response you hear from lenders is, \u2018I have capital for construction projects, but it\u2019s not going to be super-competitive or ultra-aggressive because we need to see some of our current outstanding loans pay off.\u2019\u201d<\/p>\n

Construction\u2019s challenges<\/h2>\n

\"walker-dunlop-bridge-loans\"<\/a>As recently as March, the Kroll Bond Rating Agency estimated that banks would increase construction and development lending in 2017 following strong showings in 2016 and 2015. But bankers anecdotally confirm a slowdown. \u201cAvailability of project loans for new development clearly has become more difficult to obtain if you are a borrower or a developer,\u201d reported Norman Nichols, executive vice president & head of income property and community development lending for KeyBank.<\/p>\n

\u201cIt\u2019s a function of where we are in the economic and valuation cycle,\u201d explained Mark Myers, executive vice president & head of commercial real estate at Wells Fargo. The impact has been particularly acute for construction lending because of its lead time and comparatively higher risk profile.<\/p>\n

Project sponsors should expect leverage in the 50 to 60 percent range, Inman advised. \u201cWe\u2019re also seeing construction lenders require more recourse from borrowers as opposed to the higher-leverage, non-recourse loans we saw being done 24 to 36 months ago.\u201d<\/p>\n

One recent deal took Inman almost 18 months to capitalize. A lender had tentatively signed on, but when the terms changed after review by the loan committee, the client had to start over. A regional bank eventually agreed to fund the deal on the condition that it would limit its exposure by teaming up with a second bank.<\/p>\n

Rising prices and falling cap rates and yields have changed the dynamics for acquisitions of existing multifamily product, too. Earlier in the cycle, an investor could buy a community without needing a bank\u2019s bridge loan, Inman recalled. \u201cBut pricing has gotten higher and cash flow is getting thinner,\u201d he said. \u201cCap rates are lower, and now the deals don\u2019t qualify for competitive permanent lending from day one.\u201d<\/p>\n

This spring, Inman and his colleague Jon Hyduke, a Walker & Dunlop vice president, arranged $99.7 million in acquisition financing for a longtime client; the owner is eyeing renovations for its new purchase, a 1,795-unit, Class B multifamily portfolio in Texas. A large regional bank is providing six three-year bridge loans at attractive interest rates and a 75 percent loan-to-cost ratio.<\/p>\n

New demands<\/h2>\n
\"Source:<\/a>

Source: CBRE Capital Markets and CBRE Research Reflects non-agency commercial\/multifamily loans.<\/p><\/div>\n

Nichols noted there has been no dramatic pullback in the availability of term loans, permanent loans or refinancing for cash-flowing or near-stabilized assets, which collectively make up a significant share of Key\u2019s real estate lending business. Such loans are considered safer than those for construction, he added.<\/p>\n

But lenders have stepped up underwriting discipline. \u201cBanks are demanding more equity, demanding higher returns,\u201d he explained. \u201cClearly there is evidence of it, even for cash-flowing and stabilized assets, compared to (before the) financial crisis.\u201d Multifamily properties have accounted for the vast majority of Key\u2019s project finance originations in the past year because of the sector\u2019s strong fundamentals, followed by retail, office and industrial.<\/p>\n

Stabilized multifamily properties likewise make up the bulk of real estate originations at Investors Bank, a New Jersey-based institution focused on the Northeast, reports Joseph Orefice, head of commercial real estate lending. A modest post-election spike preceded \u201ca pretty strong first quarter,\u201d he said, with 2017 \u201con pace to be consistent with past years.\u201d One priority is broadening its client base to other asset categories, particularly industrial.<\/p>\n

Most loans feature five-year fixed rates ranging from 3.5 percent for multifamily to the high 3 percent range for other categories. Loan-to-value ratios reach 70 percent for acquisitions and 65 percent for refinancing, he noted.<\/p>\n

At TD Bank N.A., \u201cthe amount of lending is somewhat muted compared to 2016,\u201d even though the bank finds core real estate fundamentals still sound, confirmed Gregg Gerken, executive vice president & head of commercial real estate lending. Its transactions totaled $5.3 billion in 2016, up from $5.1 billion the previous year, even as the number of loans declined slightly from the 300-plus it closed in 2015. This year, Gerken expects volume somewhere in between the 2015 and 2016 totals.<\/p>\n

For one high-profile deal last year, TD Bank joined the high-powered syndicate that is providing $1.5 billion in construction financing for One Vanderbilt, the 1.6 million-square-foot trophy tower rising next to Manhattan\u2019s Grand Central Terminal. Also participating are Wells Fargo, Bank of New York Mellon, J.P. Morgan Chase and Bank of China. TD Bank is a future tenant as well as a lender, and will take 200,000 square feet of office space plus a ground-floor retail location.<\/p>\n

By the numbers<\/h2>\n

Borrowers looking to TD Bank for construction lending can expect rates in the high 4 percent range. Stabilized, high-quality properties that are moderately leveraged typically qualify for financing in the upper 3 percent range, with a three-, five- or seven-year term and an LTV between 55 and 65 percent. Much of TD Bank\u2019s CRE lending is for multifamily properties, particularly affordable housing. Gerken called the industrial sector another bright spot, largely because overbuilding remains rare.<\/p>\n

Wells Fargo\u2019s Myers said that the bank will continue to pursue an active program that encompasses balance-sheet lending, CMBS, the GSEs and affordable housing. \u201cIt\u2019s safe to say we\u2019ll again be close to what we did last year, maybe down slightly,\u201d he said. \u201cI think there\u2019s more interest, more activity, more focus from banks doing loans against stabilized assets, whether that\u2019s acquisition or refinance.\u201d<\/p>\n

In particular, Myers cited lending activity in the industrial and office sectors. \u201c(We) are active on both coasts and see good opportunities for us on the office side,\u201d he said. \u201cWe\u2019re following job growth.\u201d<\/p>\n

Originally appearing in the\u00a0June 2017 issue of CPE.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

As 2017 approaches the midpoint, the capital markets remain bullish on real estate, and commercial banks are among the most active lenders.<\/p>\n","protected":false},"author":1068,"featured_media":1004505902,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21782,1521,21825],"tags":[36157,33995,32789,32937],"class_list":["post-1004180425","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-development","category-digital","category-finance","tag-alex-inman","tag-brian-stoffers","tag-cbre","tag-keybank"],"acf":[],"yoast_head":"\nCommercial Banks and the Capital Markets - 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\/take-it-to-the-bank\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Commercial Banks and the Capital Markets\" \/>\n<meta property=\"og:description\" content=\"As 2017 approaches the midpoint, the capital markets remain bullish on real estate, and commercial banks are among the most active lenders.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/take-it-to-the-bank\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2017-06-14T14:21:41+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-12-09T05:54:59+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2021\/03\/Untitled-1-800x620-1.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"826\" \/>\n\t<meta property=\"og:image:height\" content=\"620\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Gail Kalinoski\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/take-it-to-the-bank\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/take-it-to-the-bank\/\",\"name\":\"Commercial Banks and the Capital Markets - 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