Scotsman Guide > Commercial > May 2018 > Department

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Commercial Department: From the Editor: May 2018

 

From the Editor

Keep underwriting in mind when targeting business opportunities

c_2018-05_FTE.jpgGood times never last, and even the most optimistic commercial real estate professionals can recognize a potential tighter lending environment on the horizon — especially given the data being released in recent months.

According to a report published this past March by the U.S. Government Accountability Office (GAO), for example, bank risk in commercial real estate lending has increased since the end of the global financial crisis. As of second-quarter 2017, the GAO report found that the number of banks with commercial real estate loans representing 300 percent or more of their total capital reserves had risen to the highest level since 2009. Additionally, in about 30 percent of the banks examined by the GAO, weaknesses were found in at least one risk-management area, including underwriting.

The Federal Reserve conducted a survey of senior loan officers that found underwriting standards for all types of commercial real estate loans were expected to tighten this year. That includes the multifamily sector, which has been the bellwether of the commercial mortgage industry for some time. Stricter underwriting standards, especially in the case of community and regional lenders, typically results in fewer loan dollars directed to commercial real estate — although that result may open doors for online lenders and crowdfunding sources, according to the National Association of Realtors.

Readers interested in underwriting, our May focus topic, can start by flipping to the Q&A on Page 20 with Jamie Woodwell of the Mortgage Bankers Association. We also have three articles this month that touch on underwriting.

On Page 51, first-time author Panama Bartholomy of the Investor Confidence Project — a group with close ties to the U.S. Green Building Council — delves into financing opportunities for green-building projects. Commercial mortgage brokers should know the value of energy services companies and energy services agreements, for example, to help a client with a stabilization or value-add project.

On Page 56, Pat Jackson of Sabal Capital Partners LLC offers a thorough look at technological advances within the small-balance lending market. Commercial mortgages of $1 million to $7.5 million, which serve an essential role in the development of high-demand workforce housing, are becoming less risky as artificial intelligence starts to replace human underwriters in analyzing and assessing property data, Jackson writes.

Igor Zhizhin of American Street Capital LLC returns as an author on Page 78 with details on Fannie Mae’s and Freddie Mac’s green-loan programs. The underwriting structure for these programs has tightened recently, but the government-sponsored enterprises (GSEs) are likely to fund more of these investments because they don’t count toward their annual loan caps.

Our lead article from Garry Barnes of PW Partners Consultancy provides a timely update on the uncertain future of commercial real estate. On Page 30, Barnes offers advice to commercial mortgage brokers looking to stabilize their business in the event a downturn arrives. Maximizing your own value, utilizing technology and connecting to a wide variety of lenders are ways to achieve your business goals, Barnes writes.

Our May edition also includes two other first-time authors in Jane Powell and Christopher Muoio. On Page 46, Powell lays out the common structural “red flags” for commercial properties that, if not addressed, can jeopardize a financing deal. And on Page 60, Muoio discusses a recent trend within the retail sector: In the wake of e-commerce’s growing impact on brick-and-mortar retail outlets, more property owners are repurposing vacant retail spaces in an effort to jumpstart their income.

We hope you find valuable information in this month’s magazine. And, while it’s true that good times never last, you may look to hold onto them this month, whether it’s with colleagues at a Cinco de Mayo get-together or with family and friends on Memorial Day weekend.


 

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

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