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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33 March | April | 2016 CCIM.com concluded that they also anticipate strong growth in terms of the number and volume of loans originated in the new year. T e four major investor groups — banks and thrif s, CMBS, agency/GSEs, and life insurance companies — represent 86.2 per- cent of the $2.76 trillion of current outstand- ing debt on commercial and multifamily properties. T e majority of the respondents to the MBA survey feel that this is in large part due to the high levels of maturing loans that were originated in 2006 and 2007, cou- pled with the strengthening U.S. economy. Based on this sentiment, investor groups should continue to diversify their portfolios by being both geographically and product- type diverse in 2016. T e portfolio lenders with a f nite allocation are particularly care- ful of both geographic and product-type concentrations. T ey are sensitive to wisely assure their investments are appropriately spread between multiple geographic regions and asset classes. In 2016, multifamily and industrial will continue to be the most widely sought-af er asset classes. While of ce and retail are also desirable investments, these product types require a more careful underwriting process, taking into consideration tenant quality and lease rollover exposure. Lender Sentiment and Focus. T is year, the four dif erent investor groups will bring varying advantages to the capital markets — both complementary and competing. Banks and thrif s bring local knowledge, f exible terms, and a commitment to their trade area. A good example is the coastal communities where rent and values exceed most other markets. T e local banks and thrif s that are in these markets are comfort- able with the higher loan per square foot for those property owners seeking higher lever- age and loan-to-values. However, due to their cost of funds, their terms tend to be shorter and rates slightly higher. T e CMBS market has provided an inf - nite amount of capital to the real estate industry. Although occasionally cyclical and volatile, the CMBS market has met a demand for the higher-leverage borrower seeking to maximize loan proceeds or properties that don't f t the investment criteria for the other investor groups at very reasonable rates. Agency and GSEs, such as Freddie Mac, Fannie Mae, and the Department of Housing and Urban Development, have always been the best alternative for the better-quality multifamily asset class. Life insurance companies, although the smallest of the commercial and multifam- ily investor groups, have always been the "best terms" alternative. Due to their cost and availability of managed funds, property owners with good quality assets seeking lower leverage for the longest terms at the lowest rate would most probably f nd the life insurance companies their best option. A good example of complementary and competing options is a recent transaction in which our f rm was hired to replace the maturing loans that we had placed on a portfolio of 12 shopping centers in Southern California 10 years ago. T e $154 million portfolio of loans ranged from $5 million to $36 million, with loan-to-values ranging from 50 to 75 percent. T e loans also ranged from 10-year terms amortized over 30 years to 20-year terms fully amortized. In the 4Q15 Loan Activity YOY 4Q (% change) 3Q–4Q 2015 (% change) Total 19% 35% BY LENDER CLASS CMBS -2 3 Banks and thrifts 82 50 Life i nsurance cos. 19 17 GSEs 24 90 BY PROPERTY TYPE Multifamily 15 47 Offi ce 15 -1 Retail 13 15 Industrial 128 150 Hotel 60 131 Healthcare -57 20 Source: Mortgage Bankers Association current market landscape, we found that the best option for our client was to place this request with four dif erent sources: two life insurance companies and two CMBS lenders. By doing so, we were able to secure financing that met the client's current needs, while also utilizing the variety of benef ts provided by these varying capital sources to complement one another to our client's advantage. Overall, based on the continued strong market fundamentals including availability of capital, low long-term interest rates, and the still low cost of capital, the 2016 capital markets will remain healthy and provide an opportunistic environment for continued growth and investment within the real estate sector. In addition, investor groups will remain vigilant in diversifying their portfo- lios both geographically and by product type, while owners and investors seeking to invest in real estate will continue to benef t from the diverse range of capital sources available. Patrick Ward is the founder of MetroGroup Realty Finance, a private mortgage banking company based in Newport Beach, Calif. Con- tact him at pward@metrogroupfi nance.com.