Growing Pains
continued from page 51
THE EQUITY SIDE
Virtus, of course, is an equity player, and thus comes to the
market with a different perspective than debt originators and
borrowers. “What is happening in the market now is really two
different stories,” Cassidy Turley’s head of capital markets, David
Webb, says. “The impact of August’s events have been much
more subtle for equity.”
In general, both investors and borrowers have become slower
and more deliberate in their deal making, he notes, but the funda-
mental go-to-market approach hasn’t changed.
Instead of the blowout seen in CMBS, “there has been a bit of
widening on spreads between core and non-core opportunities.” In
some cases, he says, that widening can be significant, but that is not
much different than pricing trends for the entire year. Citing a
hypothetical example of a multifamily project in Washington, DC,
where Webb is based, he says the yield difference required on an
investment in a class A product in the city compared to the suburbs
could be as much as 300 bps.
Ultimately, though, that example is useful only for investors and
borrowers in the Washington, DC area. “Pricing is still very much a
market-by-market situation,” says Mesa West Capital’s East Coast
principal, Raphael Fishbach. If he had to generalize, he says, Mesa
West “is pricing deals to be accretive to the equity.”
GSES VERSUS LIFE COMPANIES
At the recent NIC Conference held in Washington, DC, Vic Clark,
the Dallas-based central regional manager with Walker & Dunlop,
told the audience that there hasn’t been a single health care loan
securitized in any of the CMBS 2.0 pools as far as he can tell.
Why? “HUD and Fannie and Freddie are too competitive,” he
says. “The Wall Street banks recognize that they can’t compete.”
Perhaps the one bright spot for borrowers in this murkier and
volatile capital markets environment is that Fannie Mae and
Freddie Mac continue their multifamily loan production, and have
plans to step up volume in 2012. An active GSE community also
means that life insurance companies must stay competitive as well.
“Without a doubt the agencies have been good to the commercial real estate markets,” says Larry Stephenson, NorthMarq’s
executive vice president and director of capital markets.
It is an irony, of course, because never before in their existence
has the GSEs’ future course been so unclear. Washington, beset with
budget difficulties, will sooner or later put its support of the GSEs on
the chopping block. How much of the multifamily program survives
will depend on the lobbying efforts of the finance community.
As Clark notes, their existence has kept some private sector
players like CMBS out of certain areas—an argument that proponents of a thoroughly privatized Fannie and Freddie make.
However Stephenson doesn’t think they have crowded out players that would have otherwise gone into these areas. A health care
CMBS, for instance, requires so much more expertise than just
financial engineering; it is one of the few asset classes in real
estate that requires an in-depth knowledge of the operating fundamentals and the myriad government regulations in Medicare
and now, with the new health care law.
In other cases, he says, “life companies have been able to compete on properties that haven’t been stabilized or otherwise don’t
fit the GSE model.” They have also become more willing to partner
on the best deals, especially as they hit allocations for 2011. In
September, Prudential Mortgage Capital Co., MetLife and New
York Life provided $725 million in financing for Boston Properties’
601 Lexington Ave., the former Citigroup Center. Prudential
Mortgage provided $200 million, MetLife provided $175 million
and New York Life provided $150 million.
Life company allocations for commercial real estate lending in
2012, which are being established now, are likely to be the same or
slightly higher, Stephenson predicts. “Really, except for 2008 and
2009, life companies have always been steady with their appetite for
commercial real estate, so 2012 won’t be that much of a surprise,”
he says. Unfortunately, that is about the only certainty in the capital
markets that borrowers can count on next year. ◆
Reprint orders: www.remreprints.com
CLARIFICATION
In the “Legends and Icons” feature in the September issue of Real Estate Forum, the
profile for Armando Codina left out Florida East Coast Industries’ 2007 sale to Fortress
Investment Group for about $3.5 billion. Also, in James M. Seneff Jr.’s profile, CNL
Macquarie Global Growth Trust should have been called Global Growth Trust Inc. The
vehicle was renamed this summer and Macquarie Group Ltd. and MGPA Ltd. serve as
subadvisors, making CNL Financial Group the sole sponsor.
AdIndex
Yardi Systems, Inc., 1
Colliers International, 3
Marcus & Millichap, 5
CIBC World Markets, 7
CB Richard Ellis
Realty Trust, 8-9
Globe St., 11
Lowenstein Sandler PC, 25
Chicago Title, 21
Cedar Shopping
Centers, Inc., 23
American Property Tax
Counsel, 31
Magic Companies, 32
Chase, 33
Verizon SmartPark, 35
Cassidy Turley Commercial Real
Estate Services, 36
Prudential Commercial
Real Estate, 37
The Donohoe
Companies, Inc., 38
Voit, 39
Real Share Medical Office
Buildings, 47
Walker & Dunlap, 50
Globe St., 50
Prudential Commercial
Mortgage, 51
ALIS, 53
Real Estate Professional Services
Recource Guide, 56
Reznick Group, 57
Arch Street, 62
Federal Capital Partners, 62
Coldwell Banker, 63
Franklin St. Financial, 65
Spire Realty, 64
Gotham Organization, 65
Marcus & Millichap, 66
Real Share Reprint, 66
Zurich Webinar, 67
Studley, C2
Marks Paneth & Shron, C3
National Associations of Realtors
Commercial Real Estate, C4
This advertising index is provided as an additional service. While every
attempt has been made to make this index as complete as possible, the
accuracy of all listings cannot be guaranteed.
