As published in Scotsman Guide's Commercial Edition, May 2012.
Today’s market requires commercial mortgage brokers to have a thorough understanding of the factors that control their business and the lending environment — particularly as capital has begun to flow again and allow for deals that are properly packaged to get financing. Val Achtemeier, who works on institutional and industrial debt as an executive vice president at CBRE Capital Markets, shares her views on the industry’s current trends and challenges.
What is the current status of the commercial mortgage market?
From the lending perspective, I see a lot of positive signs. There is a lot of liquidity in the market, and risk is getting priced right now. On the commercial mortgage-backed securities (CMBS) side, 2011 was a volatile year. We started off very strong in the first half of the year and then we had some big speed bumps in the second half. We are hopeful that the market can continue to get some traction, and we will see CMBS continue to be a good source of liquidity and gain some ground in 2012. The life-insurance companies had a very solid production year in 2011 and have strong allocations again in 2012.
What are the trends in the industrial sector?
The industrial market, in general, is strong, and there are positive supply-demand fundamentals. We see the shift in how retail is handled: There is a lot of Internet shopping, which drives industrial/fulfillment center demand. That is a net positive for warehouse space throughout the country, and we are seeing strong industrial absorption. For debt placement, industrial portfolio loans are attractive to lenders, sometimes more appealing than individual loans due to geographic and income diversification, critical mass and less perceived tenant credit risk. We also see extremely attractive interest rates for office and industrial loans. Interest rates are in the range of 3 percent to 3.5 percent for five-year money and 4 percent to 4.5 percent for 10-year loans for moderate loan-to-value deals — sometimes even lower.
What is your advice to commercial mortgage brokers?
There is a lot of liquidity in the market, but it is still a bifurcated market with the haves and the have-nots. Quality, stabilized assets in key markets get the best pricing and execution. Debt yield is very important; lenders want to know what income is in place that they can count on. You have to have a handle on your debt yield, and know where it is right now and where it is headed.
Brokers need to understand how assets fit from a lender’s risk-reward standpoint and figure out the best source of capital. They also need to understand the projects, and the macroeconomic factors that affect them and the market in order to do a good job advising clients. This all helps you be able to work with the lenders and your clients to get the best deal.
The loan maturities that are coming up in the next few years should be a focus, particularly the CMBS loan maturities.
Rania Oteify is an associate editor at Scotsman Guide.
Reach her at (800) 297-6061 or email@example.com.