Mission Capital Advisors’ director Gregg Applefield discusses how the debt markets have maintained a positive tone since Labor Day, and how that’s going to continue into the next year.
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Three Things to Know
About Capital Markets
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Remember the interest rate uptick early this summer? Just a hiccup. Lenders held their breath and then got back to commercial real estate deals as eagerly as beforeif notÂ more, experts tell us.
1) The marketâs shrugged off those summer jitters.
The debt markets have maintained a positive tone since Labor Day, and that's going to continue into the next year, Mission Capital Advisors director Gregg Applefield tells us. Banks, flush with cash, are eager to deploy it. (So get friendly with a bank before the holidays so you get on its gift list.) Insurance companies are telling the market they're likely to increase their allocations next year. CMBS has rallied since the summer and continues to experience significant demand in a yieldstarved environment.
October 28, 2013
2) Competition for deals has heated up.
"The number of banks, life companies, and CMBS lenders actively competing to win permanent financing requests has consistently increased monthbymonth since the beginning of the year," Talonvest Capital principal Eric Snyder tells us. "I expect that this will continue well into 2014." The deals aren't necessarily vanilla, either. Recently Irvinebased Talonvest oversaw $116M in 10year loans in the low 5% area secured by selfstorage properties in Illinois, Florida, and Georgia. (That's more of a rum raisin deal.) The financing was provided by a New Yorkbased commercial real estate finance company.
3) New players are jumping into the game.
"There's also been an influx of new entrants to the transitional lending market, including credit companies, debt funds, and mortgage REITs, which has driven down spreads materially for transitional properties," Gregg says. Similar to the debt markets, he expects equity markets to continue to remain strong. That's because an abundance
of global capital is eyeing US real estate for some sweet yields, especially when compared to most other investments. Recently Gregg relocated to the company's Newport Beach office, as part of the company's West Coast expansion.
Multifamily Loans Are Hot Commodities
Multifamily loan auctions are all the rage for both GSEs and the private sector, Auction.com EVP and managing director of global commercial real estate Ken Rivkin tells us. The highquality, seasoned loan portfolios typically come from portfolio lenders rebalancing their portfolios, including depositories, REITs, insurance companies, money managers, and select funds, he says. Irvinebased Auction.com was just tapped to sell 447 performing multifamily loans with an unpaid principal balance of $601.3M. (So the stakes are a little bit higher than bidding on an Iggy Pop bootleg CD on eBay.) The portfolio: 7.5% fixed, 92.5% floatingrate; and an average current balance of $1.3M. The loans are secured by 465 properties (18,456 units)
in 23 states, with 60% in California and 11% in Texas.
Attractive due to the loans' seasoning, amortizations, and coupons, Ken says, this pool comes online on the heels of Freddie Mac's first multifamily bulk loan sale. The GSE sold 27 performing mortgages (tied to multifamily, student housing, and assistedliving facilities) with an unpaid principal balance of $195M to an affiliate of Colony Capital. Multifamily loans are viewed positively because of the asset class's low volatility, he tells us. Other incomeproducing properties like office and retail typically have fewer tenants, thus a higher concentration of credit risk from tenant defaults. And for that reason, vacancy spikes are usually less pronounced in apartments due to lack of tenant concentration, Ken explains.
OC Office Market Loses a Little Steam
Orange County office leasing decreased the past several quarters and net absorption was downbut not negativein Q3, with average asking rents remaining stable and actually increasing in certain areas, Transwestern managing SVP Liz Hurley tells us. According to Transwestern's Q3 OC office report, total net absorption for the third quarter was just over 100k SF, the lowest amount since Q1 '12. There are signs of downsizing in the mortgage industry, which, coupled with major moveouts, will contribute to continued decline in net absorption during Q4.
"In the third quarter, ClassA product experienced an increase in asking rents due to the continued flight to quality, which we anticipate should continue through the end of the year," Liz says. (Everybody likes nice things.) Even so, overall market fundamentals will probably improve over the next few years, as the
underlying economy improves, especially through employment growth. Also, the decreasing number of distressed transactions point to an improving sales market. With money cheap, growing companies
are looking hard at buying rather than renting, such as the recent purchase of 1761 E Garry Ave in Santa Ana (pictured) by Partner Engineering and Science. CBRE SVP Michael Kenndall repped the buyer in the deal.
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