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Commercial Department: From the Editor: June 2017


From the Editor

The secondary market is part of the complex fabric of financing

c_2017-06_FTE_spotThis isn’t breaking news to our readership, but it’s a difficult time to be in the retail business. On the Scotsman Guide website alone, from the start of the year through April 25, there were 13 news stories published that relate to falling sales figures, store closures or the negative impact on the commercial mortgage-backed securities (CMBS) market as a result of the closures.

It seems an appropriate time, then, for this month’s focus on the secondary market, which through investment vehicles such as CMBS, is key to the financing of many larger commercial real estate deals. The entire retail real estate industry is interconnected, starting with consumer tastes shifting away from brick-and-mortar stores to online shopping portals. That trend is causing some retailers to close stores, which leads some malls to close their doors. That, in turn, results in defaults on CMBS loans secured by those mall properties.

As more loans default, investors are less likely to sink money into new CMBS financing deals, meaning fewer stores are built, resulting in fewer options for consumers who actually want to visit an apparel or sporting-goods outlet.

But the outlook isn’t entirely bleak, particularly for brokers and investors who are trying to maintain their faith in a historically reliable financing vehicle. There are still plenty of properties to develop and plenty of money to be made. It just may require more creative, flexible thinking to achieve those goals.

Examples of outside-of-the-box thinking are occurring in cities from coast to coast. On Page 30, Clark Briner of Revere Capital details the emergence of “18-hour cities.” A number of midsize markets — like Austin, Texas; Nashville, Tennessee; and Raleigh-Durham, North Carolina — are becoming attractive environments for a variety of millennial-focused commercial real estate investment opportunities.

On Page 40, Ted Kapnek squarely addresses the CMBS environment. He argues that brokers need to find stable lenders — ones that aren’t solely interested in the deal on the table, but in repeat business. Often, this requires a broker who understands CMBS financing isn’t the only option and has the courage to advise his client to use a portfolio lender.

That’s not to say brokers should take complete control of the process. On Page 74, Yanni Raz of HML Investments says listening to borrowers and fully comprehending their goals is a difficult but integral part of a broker’s job. Up-front honesty, even if it’s difficult news for the borrower to receive, leads to higher trust and chances for a long-term business relationship.

Another emerging tactic for successful loan brokering is financial technology, or fintech. Industry professionals are certainly aware of it, given tech-based lending platforms produced more than $17 billion in investments last year. On Page 36, Evan Gentry of Money360 explains how fintech streamlines the loan-application process and how it compares with traditional lenders.

Two other important topics — construction lending and energy-efficient building practices — round out our June issue. On Page 56, Garry Barnes of PW Partners Consultancy offers a step-by-step guide for evaluating, underwriting and administering a construction loan. And on Page 48, Cindy Zhu and Holly Carr of the U.S. Department of Energy team up to analyze a number of green-building practices and how they can both reduce loan-default rates and raise property values.

From this month’s issue, hopefully, readers can glean some valuable insights into how commercial real estate financing and dealmaking ebbs and flows with the course of market trends. After all, good times never last, but neither do bad ones.


Neil Pierson is editor in chief of Scotsman Guide Media. Reach him at or (800) 297-6061.

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