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.
Issue link: http://cire.epubxp.com/i/504576
38 May | June | 2015 Commercial Investment Real Estate stringent underwriting guidelines, which have been in place at most banks since the Great Recession. Credit standards are loosening. T e scrutiny, however, is still high on the amount of cash required from the borrower in purchase transactions. Increased government regulation leads to tighter credit standards and, in some cases, unnecessary rules and regulations. Commu- nity banks are still being treated the same as Wall Street banks. T e Dodd-Frank Act was intended for banks with assets greater than $10 billion; however, the regulators are enforcing the new laws at all levels, regardless of bank size. As a result, higher compliance costs have forced many small banks to merge or to be acquired by regional banks. For the foreseeable future, this trend will continue. Casto-DeLeon: T e drop in oil prices has had some negative ef ects on Houston and surrounding areas. T e primary ef ect has been the decline in equity f owing from sources outside Texas. Fisher Levitt: Borrowers have more dif culty in securing term loans for fewer than f ve years. T is is particularly true when the lease maturity dates in retail or of ce have less than three years remaining. Another challenge is f nding a lending source that will allow bor- rowers to recapture or "cash out" of their existing equity in a project, especially if the cash-out proceeds are not going back into the project for improvements. Af er the economic downturn, many lenders are reluctant to allow borrowers to leverage a project to 75 percent or 80 percent loan-to-value when their sole purpose is to pocket the cash or invest it in other proj- ects. Lenders worry about the greater risk posed by a weaker guarantor. Source: Mortgage Bankers Association Commercial/Multifamily Debt by Investor Group, 4Q14 Banks and Thrifts CMBS, CDO, and other asset-backed securities Agency and GSE portfolios and mortgage- backed securities Life insurance companies $967 billion $533 billion $359 billion CIRE: How will raising interest rates later this year affect borrowers or your business? Fisher Levitt: As interest rates rise, the ability of a project to meet and cover its debt service is af ected, which impacts the number and volume of approved loans. As underwriting margins shrink, lenders have to decide when the risk is too high. As it becomes increas- ingly challenging to f nance good projects, conservative lenders can expect to lose more transactions to those sources whose risk tolerance is more f exible. Casto-DeLeon: If rates rise, borrowers will begin to scramble for permanent loans to replace their bank loans. Forecasters have been saying loan rates are going to rise for years. Without inf ation, how- ever, it is tough to know whether they will rise this year. If they do, it will be like musical chairs; someone will not f nd a seat. Purgerson: As interest rates rise, it will likely af ect new real estate deals with thin margins. Mize: Certainly, it is a concern from a qualifying perspective. If interest rates increase, however, it means the market is rebounding and robust growth is happening again. CIRE: How has your CCIM education/designation helped you as a lender? Purgerson: Borrowers, developers, and Realtors recognize that through my CCIM education, I understand the cash f ow model. As a CCIM, I can speak the language of commercial Realtors and know how to best structure even the most complicated transactions. Mize: My CCIM education and networking has resulted in my ability to provide customers with swif , ef cient responses to their loan requests. It also demonstrates my credibility to the brokerage community and improves my opportunities to gain referrals. Casto-DeLeon: I was fortunate to work for a company that encour- aged me to obtain the CCIM education and designation. Since earn- ing my CCIM designation, I have received several promotions — from loan closer to analyst to portfolio manager of more than 600 commercial loans. T e CCIM education gave me the knowledge to be a production analyst and servicing portfolio manager and to under- write properties for new loans, structure loan modif cations, and conduct annual f nancial reviews. Fisher Levitt: T e comprehensive CCIM education has been a huge benef t for my career. Since the CCIM curriculum teaches from the perspectives of broker, developer, and investor, I understand the varied motivations of my clients. Recognizing each client's perspec- tive allows me to of er solutions and make recommendations that are most appropriate for their desired outcomes. Sara S. Patterson is senior editor of Commercial Investment Real Estate. $412 billion