{"id":1004576916,"date":"2022-04-27T13:33:27","date_gmt":"2022-04-27T21:33:27","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004576916"},"modified":"2022-12-07T13:17:16","modified_gmt":"2022-12-07T21:17:16","slug":"commercial-banks-stay-competitive-yet-cautious-in-cre","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/commercial-banks-stay-competitive-yet-cautious-in-cre\/","title":{"rendered":"Commercial Banks Stay Competitive Yet Cautious in CRE"},"content":{"rendered":"

With so many lenders vying for commercial real estate deals, commercial banks have had to become more flexible and offer financing structures that match their rivals.<\/p>\n\n\n

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READ THE DIGEST<\/a><\/div>\n<\/div>\n\n\n

KeyBank<\/strong>, for example, offers financing packages that are similar to those touted by private equity firms and life insurance companies. That includes balance sheet and off-balance sheet products, according to Andrew Lucca, executive vice president of KeyBank Real Estate Capital.<\/p>\n

In addition, it often places deals with these shops depending on the needs of their clients.<\/p>\n

Investors are pouring money into real estate as a hedge against inflation and an alternative to low bond yields. Meanwhile, other investors are looking to cash in before rising interest rates pressure cap rates. Commercial banks are ready and willing to finance a fair share of those deals.<\/p>\n

\u201cThere is a lot of capital and a lot of motivated sellers,\u201d explained Gregg Gerken, executive vice president and head of commercial real estate at TD Bank<\/strong>. \u201cEverything is for sale at the right price across gamut.\u201d<\/p>\n

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Granite Properties’ 23Springs office development in Dallas. Photo courtesy of Granite Properties<\/p><\/div>\n

The fight for market share<\/h2>\n

Banks are encountering heated competition at a time when CBRE forecasts 10 percent year-over-year increase in commercial real estate investment in 2022.<\/p>\n

\u201cWe are seeing an avalanche of capital flow into the market from U.S. and global institutional investors, private equity funds and insurance companies,\u201d remarked Michael Riccio, senior managing director of debt and structured finance at CBRE<\/strong>.<\/p>\n

That means growing competition for banks from investment banks, private equity firms, and insurance companies.<\/p>\n

The availability of capital and the search for yield has become so heated, Gerken noted, that debt funds are now willing to take a lower return to win business.<\/p>\n

\u201cTheir spreads used to be 400 basis points, and now it\u2019s down to between 150 to 200 basis points,\u201d he said.<\/p>\n

CBRE\u2019s fourth quarter 2021 survey offers a snapshot of how market share in the commercial real estate loan market is shifting.<\/p>\n

The survey, an analysis of CBRE\u2019s total originations, revealed that banks were the second-most active lending group during the fourth quarter, increasing their share of non-agency lending volume to 29 percent up from 24.5 percent from a year earlier. Bridge loans accounted for 38.5 percent of banks\u2019 lending volume, while permanent loans accounted for 35 percent and construction loans 21 percent.<\/span><\/p>\n

Alternative lenders such as debt funds and mortgage REITs, held the largest share of non-agency loan closings in the fourth quarter of 2021 at 37.7 percent.<\/p>\n

Life insurance companies\u2019 share of commercial mortgage closings fell to 14.8 percent in the fourth quarter from 20.2 percent in the third quarter of 2021ies.<\/p>\n

CMBS originations accounted for 18.5 percent of total lending in the fourth quarter, 2021 up from 10.5 percent during the same time last year.<\/p>\n

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Granite Properties\u2019 23Springs office development in Dallas. Photo courtesy of Granite Properties<\/p><\/div>\n

Fuel for Growth<\/h2>\n

What are the drivers that will continue to fuel commercial real estate lending this year? According to Lucca, you can expect to see more acquisition activity as sellers worry about the economy and asset values.<\/p>\n

\u201cPeople realize they may be able to get the best value if they sell now since valuations are at historic highs and interest rates are still low,\u201d he explained.<\/p>\n

The most active sectors for commercial banks–and for investors–will continue to be industrial and multifamily due to strong demand and income growth.<\/p>\n

\u201cWe see no signs of a slowdown in these two favored asset classes,\u201d noted Al Brooks, head of commercial real estate for JPMorgan Chase<\/strong>.<\/p>\n

The value equation for investors in these property types has helped stymie big moves in cap rates.<\/p>\n

\u201cIt\u2019s like a tale of two cities,\u201d Riccio pointed out. \u201cOn the institutional side, there has been no change in cap rates. But for small equity transactions of less than $10 million that usually use more debt for leverage, borrowing rates are a little higher.\u201d<\/p>\n

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One Madison Avenue a skyscraper under re-development near Madison Square Park in New York City. Photo courtesy of SL Green<\/p><\/div>\n

Refinancings should also be increasingly popular as investors race to get ahead of the rising rate curve, Lucca predicts.<\/p>\n

Construction financing, however, is one area bankers remain cautious about due to inherent risks that include labor shortages, supply chain disruptions, and the rising cost of building materials.<\/p>\n

\u201cConstruction financings are also expected to be tougher this year as floating rate indices rise as the Fed fund rate continues to climb,\u201d CBRE\u2019s Riccio noted.<\/p>\n

\"\"<\/a>

One Madison Avenue a skyscraper under re-development near Madison Square Park in New York City. Photo courtesy of SL Green<\/p><\/div>\n

At KeyBank, they are hedging their risk in this lending category. \u201cWe are limiting the amount of development we are funding, and we are making sure costs are locked down in advance due to inflation and supply issues,\u201d Lucca revealed.<\/p>\n

Some banks, on the other hand, are still aggressively pursuing construction loans. Bank OZK, the regional powerhouse from Little Rock, Ark., was one of the most ambitious construction lenders last year, and it doesn\u2019t seem to be slowing down.<\/p>\n

Among its construction loans this year are a $540 million loan with Carlyle Group for 1,000-square-foot mixed-use project on New York City\u2019s Fifth Avenue and $800 million for an Upper West Side condo tower in February; and a $236 million loan for a ground-up office development in Dallas in April. (The bank also signed a 110,029-square-foot lease for a new regional headquarters in the building at the Dallas property.)<\/p>\n

In Bank OZK\u2019s fourth quarter earnings call, Chairman & CEO George Gleason said the bank sees the opportunity to make its biggest loans to date lending on several of the complex mixed-use projects that will be seeking financing in 2022 and 2023.<\/p>\n

It remains to be seen if those estimates will be adjusted in the bank\u2019s first quarter 2022 earnings call.<\/p>\n

Redevelopment Not Development<\/h2>\n

One potential area of increased activity for banks and other lenders is office redevelopment Corporations need state of the art amenities to attract employees back to the workplace, and landlords need their buildings to stay relevant. Sought-after features by tenants include improved indoor air filtering, fitness centers, outdoor spaces, private terraces and shared rooftops.<\/p>\n

\u201cThis became a noticeable trend in Q4 last year and it continues through 2022,\u201d said Steven Durels, executive vice president and director of leasing and real property at SL Green Realty Corp.<\/strong> \u201cAnd it is not just happening in Grade A office buildings but also at Class B buildings as well that are located close to public transportation.\u201d<\/p>\n

In March, SL Green<\/strong> announced that IBM will consolidate nine New York City offices into an upgraded One Madison Ave. in Manhattan\u2019s Flatiron district.<\/p>\n

SL Green financed the $1.25 billion redevelopment just prior to the pandemic\u2019s outbreak with a facility led by Wells Fargo<\/strong>, TD Bank, Goldman Sachs<\/strong>, Bank of America<\/strong> and Axios Bank<\/strong>.<\/p>\n

Read the May 2022 issue of CPE.<\/em><\/a><\/p>","protected":false},"excerpt":{"rendered":"

Despite economic uncertainties, banks forge ahead in the still-heated lending arena.<\/p>\n","protected":false},"author":2818,"featured_media":1004576934,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1521,21825],"tags":[],"class_list":["post-1004576916","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-digital","category-finance"],"acf":[],"yoast_head":"\nCommercial Banks Stay Competitive Yet Cautious in CRE - 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\/commercial-banks-stay-competitive-yet-cautious-in-cre\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Commercial Banks Stay Competitive Yet Cautious in CRE\" \/>\n<meta property=\"og:description\" content=\"Despite economic uncertainties, banks forge ahead in the still-heated lending arena.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/commercial-banks-stay-competitive-yet-cautious-in-cre\/\" \/>\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=\"2022-04-27T21:33:27+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-12-07T21:17:16+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2022\/04\/One-Madison-Avenue-full-building.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"900\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Lori Ioannou\" \/>\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\/commercial-banks-stay-competitive-yet-cautious-in-cre\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/commercial-banks-stay-competitive-yet-cautious-in-cre\/\",\"name\":\"Commercial Banks Stay Competitive Yet Cautious in CRE - Commercial Property Executive\",\"isPartOf\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/commercial-banks-stay-competitive-yet-cautious-in-cre\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/commercial-banks-stay-competitive-yet-cautious-in-cre\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2022\/04\/One-Madison-Avenue-full-building.jpg\",\"datePublished\":\"2022-04-27T21:33:27+00:00\",\"dateModified\":\"2022-12-07T21:17:16+00:00\",\"author\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#\/schema\/person\/3be078dac9db3cdd40ca1c3bf5314d10\"},\"breadcrumb\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/commercial-banks-stay-competitive-yet-cautious-in-cre\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.commercialsearch.com\/news\/commercial-banks-stay-competitive-yet-cautious-in-cre\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/commercial-banks-stay-competitive-yet-cautious-in-cre\/#primaryimage\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2022\/04\/One-Madison-Avenue-full-building.jpg\",\"contentUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2022\/04\/One-Madison-Avenue-full-building.jpg\",\"width\":1200,\"height\":900,\"caption\":\"The project was completed three months ahead of schedule. 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