New York Commercial Real Estate Guide: Commercial Real Estate Lender - NYREJ

Sam Berns, NorthMarq Capital

Highlights from the 2016 Commercial Mortgage Bankers Conference by Berns of Northmarq

Orlando was the site of this year’s Commercial Real Estate Mortgage Bankers Conference. More than 4,500 attendees were at this year’s conference representing mortgage bankers, Commercial Mortgage-Backed Securities (CMBS) lenders, life insurance companies, agency lenders, banks, mezzanine, bridge lenders and preferred equity providers. NorthMarq Capital met with more than 60 of these organizations during the three-day event. These groups will shape the commercial real estate market for the next year. 

Compared with the 2015 conference, this year’s overall tone was more cautious. Many capital sources indicated that low Treasury rates and the uncertainty of the U.S. economy represent factors in their thinking. Most lenders believe the positive commercial real estate trends that began in 2010 are not likely to continue through 2016. This sentiment was shared by most lenders who believe 2016 will provide sporadic real estate debt and equity opportunities. One of the concerns in 2015 among many of our correspondent lenders was “Is there enough demand for capital in the marketplace?” We can now say “There was too much capital chasing transactions in 2015.” We are not expecting that to be the case in 2016 as lenders are more wary about the market overall.

As cash continues to accumulate on most lenders’ balance sheets, they are actively searching for yield opportunities. As U.S. Treasury rates drop, many of our lenders are using floor rates. 2015 demonstrated some market peak behaviors including higher loan-to-values, creativity, a larger spectrum of loan opportunities and a greater number of loan products. We do not believe that will be the case this year. Many capital sources are adopting a wait-and-see posture.

Lender Feedback

Agency Lenders

Last year, NorthMarq continued to rank highly with loans nationally with both Freddie Mac and Fannie Mae. NorthMarq finished the year as one of the nation’s largest originators of Freddie Mac loans nationally. Together these agencies again led the marketplace for multi-family loans. These low-cost, multifamily debt providers continue to be about 25-50 basis points less than most lenders on higher leverage transactions. There has been some leeway with loan-to-values for refinances, with cash-out now available up to 80% on a per exception/waiver basis. Agencies will continue to be more aggressive on Very Low Income Housing and Affordable Housing opportunities. New for the Agencies this year will be earlier rate locks, lease-up programs and additional “interest-only” periods.

CMBS

CMBS lending made a comeback in 2015, as there were more than 40 CMBS shops. CMBS lending today is a much different story. Swap spreads and B-piece buyers have created choppy waters in CMBS lending. Several CMBS companies laid off staff, and some closed shop entirely. We have taken the position that if CMBS is the only execution available for your transaction, then it’s prudent to stick with CMBS lenders who have large balance sheets supporting them.

Life Companies

Loan sizes range from $2 million up to $50 million for most institutional-grade properties. Basic product types of apartments, retail, office and industrial continue to be what most life companies are seeking. Most life companies’ loan-to-values will max out at 75% for multifamily and 70 percent for other property types. However, NorthMarq saw several life insurance companies approaching 75 percent loan-to-values for property types other than multifamily in 2015. Loan terms of 5-15 years with some 20/20 self-amortizing loans will be available in 2016. Several life companies are becoming more flexible with pre-payment penalties moving from yield maintenance to declining balance. With the U.S. Treasuries as low as 1.75% as of this moment, several Life Insurance companies are using floor rates in the 4% range and eliminating forward commitments.

Mezzanine & Bridge Lenders

Mezzanine lenders and preferred equity groups continue to fill the loan-to-value gap in the shortfall created by the aggressive lending earlier in the decade. Average interest rates are in the 8-12% range, allowing loan-to-values to approach the 80-85% range. Bridge lenders continue to seek turnaround/distressed assets in the $5-million-and-up range. Depending on in-place cash flows, loan-to-values will be in the 65-70% range. These non-recourse loans are totally driven by the markets in which the properties are located and sponsor experience. Most loans are interest-only for a two to three year period.

In summary, expect the 2016 lending environment to be more cautious than 2015. Most lenders are looking to maintain last year’s production levels. CMBS is in for a bumpy ride, which will make 2016 a very interesting year.

NorthMarq Capital, the largest privately held commercial real estate financial intermediary in the U.S., provides debt, equity and commercial loan servicing through its 36 offices across the U.S. The company has built long-term relationships with life companies, CMBS platforms and local, regional and national banks and has a long track record of multi-family loan origination through Freddie Mac Program Plus™, the Fannie Mae DUS program and through FHA, resulting in more than $12 billion in annual production volume and a loan portfolio of more than $47 billion.

NorthMarq Capital, Sam Berns, Rochester, NY, 585-262-2100, www.northmarq.com/Rochester.com