Real Estate Leadership Guides 6 DEBT & EQUITY CAPITAL EDITION 2018
In fact, as 2017 moves into 2018, the Fed is not the
only development in play that will have an effect on the
CRE capital markets.
Policy and market forces are intersecting yet again,
but any realignment that may result will not be as dramatic as last year’s risk-retention rule, which caused
the CMBS market to pause at the start of 2017. Still,
changes are afoot that could affect the capital markets,
from a possible rewrite of the US tax code to more granular efforts as the proposed rule by the Fed, the Federal
Deposit Insurance Corp. and the Office of the
Comptroller of the Currency to simplify current capital
rules for the so-called high volatility commercial real
estate loans, or HVCRE.
At the same time, the current cycle is getting long in
the tooth, which is also having an effect on fixed-rate
bank borrowing. “Because we’re late in the cycle, people are less likely to take a lot of floating rate risk, so
demand for fixed-rate products is increasing,” says
John J. Campanella, executive managing director of
equity, debt and structured finance at Cushman &
But there’s also the fact that the US economy is
getting stronger, not slowing down for the inevitable
decline. That could well extend the CRE cycle further,
Pendergast says. “You rarely see commercial real
estate suffer in an environment where economic
growth is improving,” she says.
In short, these are still good times for commercial
real estate and its capital markets and next year will
likely continue down the same path. Despite the
mature cycle and rising interest rates, the overarching
story line is one of continued liquidity. And its expected
ending? A gentle landing.
Here, though, it must be noted that
the Mortgage Bankers Association
expects commercial and multifamily originations to be essentially flat in 2018.
That is, unchanged from the $515 billion
in volume expected for 2017. The flat
growth is disconcerting as it will be the
first year since 2009 that year-over-year
comparisons for commercial and multifamily mortgages won’t—assuming MBA
Yet all that being said, the industry is beset with dry
powder, a problem exacerbated by the low supply of
assets available for purchase and a growing gap in
price expectations between buyers and sellers.
NEW CAPITAL SOURCES IN THE MIX
Sources of finance up and down the capital stack are
still eager to engage with borrowers. And not dissuaded by the lengthy cycle, new financing providers
continue to enter the market.
Pensam Funding, a direct real estate lender based
in Miami and Houston affiliated with Pensam Capital,
for instance, was originally focused on investing equity
into multifamily real estate assets. But that focus has
been broadening to include preferred equity and, more
recently, debt in the form of whole loans.
The company recently provided two loans for properties located in Houston: one for $27 million to Regalia
Bella Terra, a nearly completed 227-unit multifamily
development that is undergoing lease-up, and a larger,
$60-million loan to refinance Nob Hill Apartment
Homes, a 1,326-unit community. The floating-rate, inter-
Pensam Funding recently provided $60 million to
refinance Nob Hill, a 1,326-unit apartment community
in Houston. The deal was part of a broadening lending
strategy by the Miami-based firm, a direct real estate
lender affiliated with real estate investment platform