Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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37 May | June | 2015 CCIM.com As loss rates in commercial real estate loans plummet, U.S. banks are once again competing to lend the funds that complete the deals. Commercial real estate lending is strong, with 2014 year-end loan balances matching the last peak market of 2007. However, the shadow of the Great Recession still lingers, in lenders' cautionary attitudes and new regulatory oversight. In addition, some markets and commercial real estate sectors are facing new challenges as local and global forces are more tightly intertwined. Just as lending is on the upswing, so is the number of lending pro- fessionals who hold the CCIM designation. Commercial Investment Real Estate discussed the nuances of commercial real estate f nancing with four CCIM designees active in the lending industry: • D'Etta Casto-DeLeon, CCIM, assistant vice president and portfolio manager, Grandbridge Real Estate Capital, Houston; • Glynnis Fisher Levitt, CCIM, vice president and real estate busi- ness adviser, PNC Financial Services, Birmingham, Ala.; • Maryann Mize, CCIM, senior vice president and senior credit of cer, Charlotte State Bank, Port Charlotte, Fla.; and • James Purgerson, senior vice president and senior lending of cer, Citizens Bank & Trust, Baton Rouge, La. CIRE: Describe the state of commercial real estate lending in your market today, based on your experience and your bank's participation. James Purgerson, CCIM: T e economy on the southeastern Gulf Coast has presented great opportunities for the banks, and most banks want to expand their loan portfolios. An unprecedented amount of growth in the chemical plants and ancillary businesses is taking place. Underwriting standards have eased since the recession. Banks, however, remain cautious due to the recent volatility in oil prices since many businesses here have ties to the energy sector. D'Etta Casto-DeLeon, CCIM: Texas and Houston are less vulner- able to the kind of oil shock that derailed the state in the 1980s. In 1986, 80 percent of the local economy was tied to the petroleum, natural gas, and chemical industries. Nearly 30 years later, that number has been reduced to approximately 48 percent. T e new growth comes primarily from a surge in healthcare providers and social services companies. Glynnis Fisher Levitt, CCIM: In central Alabama, my focus is on clients who make real estate investment decisions based on building wealth, sheltering income, or securing sustainable retirement cash f ow. T ey are not solely dependent on real estate and are not consid- ered professional real estate investors. T ese transactions are usually single projects under $3 million. In today's marketplace, this type of lending is closely examined, and decisions are based on the performance of the project itself and its ability to adequately manage its debt service obligations without looking to guarantor cash f ow. While an uptick in activity overall is occurring, the ref nance market has been slightly stronger than the transaction market. Maryann Mize, CCIM: Southwest Florida was considered to be just about ground zero for the real estate housing crisis, resulting in a dramatic reduction in value and number of transactions in the residential and commercial sectors. With no new commercial starts in approximately six years, commercial real estate foreclosures are down to a trickle. Within this expanding market, rental rates and sale prices are either stabilizing or improving. CIRE: What types of CRE loans are most prevalent today? Fisher Levitt: Most current opportunities occur in multifamily, small retail, and medical of ce. PNC Financial Services typically of ers loans under $3 million. T ese loans track maturity dates that are closely tied to the lease maturity dates of the tenants — for retail or of ce — and up to f ve years on multifamily with a proven historical track record. Many lenders link note maturities to the existing leases in place, and fewer are willing to stretch their maturities very far beyond the certainty that the project will maintain its tenant mix. Casto-DeLeon: From 2014 to date, multifamily has been the most prevalent loan type. T irty-year amortization has been easy for mul- tifamily borrowers with f ve- and 10-year loans priced between 3.5 to 4 percent. T e retail market is making a huge comeback and is catching up to the demand of an increased population. T e large number of grocery stores under construction ref ects this change. In 2015, the industrial market is poised to be the strongest sector. Cheap oil and natural gas prices ease the costs for the ref neries and petrochemical plants along the Houston Ship Channel. Currently, an investment of $50 billion in petrochemical plant expansions is underway. Mize: Improved properties within the three main sectors — of ce, industrial, and retail — have f nancing available in the range of 20- to 25-year amortization and maturity with f ve-year adjustable rates. Purgerson: Buyers and owners of multifamily properties of all sizes have very favorable opportunities to seek f nancing. T ese properties are trading at lower cap rates and are in high demand. Industrial properties of all sizes — especially those with high credit tenants — command favorable terms. Most lending institutions have an incentive to invest in this market. Lending remains competitive with the exception of retail, which has to overcome higher vacancy rates. CIRE: What are the challenges facing borrowers seeking commercial real estate fi nancing today in your market? Mize: In the central Florida marketplace, insurance costs and sus- tainability of the recovery are the biggest obstacles to full recovery. Purgerson: Borrowers are still becoming accustomed to the more Source: Mortgage Bankers Association 2014 Loans, 4Q14 Total commercial/multifamily debt $2.64 trillion ↑ 4.7% YOY Multifamily debt $964 billion ↑ 6.6%YOY alphaspirit/Thinkstock