Real Estate Capital Institute Reports Commercial Mortgage Lenders Bullish on Funding Goals and Objectives for 2017

 

John Oharenko

Chicago, IL -- The commercial mortgage lending industry

held its annual conference (CREF) in San Diego this month with industry

veterans remaining very bullish on the funding goals and objectives for this

year.  In summary, an abundant supply of capital combined with conservative,

yet competitive underwriting summarizes the state of the market.  Some of

the key comments shared by lenders include the following:

► “We have more money than deals!”- Most funding sources have same

allocation as last year. CMBS lenders expect to be very active, but only at

profitability levels that accurately reflect risk retention.

► “For the right deal, we’ll win on pricing”- Life insurance companies

clearly lead the industry as far as pricing, with the lowest spreads dipping

below 130 basis points over the ten-year treasuries for lower leverage

opportunities of 50% or less, for example.

► “Spreads just keep tightening"- Mortgage spreads over treasuries are

narrowing, but intense pricing competition remains for lower leverage

offerings. Typical loan pricing at 65% LTV fall comfortably below 200 bps.

► “75% LTV, but on my #s”- Some lenders concerned about peak pricing level

use internal underwriting restrictions such as capitalization rates with

floors. In these instances, leverage levels of 65% are "normal" and 70% or

more is considered "high leverage.” Apartment still attract up to 80% LTV.

Jeanne Peck

► “Can't get enough apartments/industrials” - Capital sources demand more

multifamily and industrial properties to balance out their portfolios as

these are the two most favored categories. Apartments for cash flow

stability and industrials for diversification.

► “Not just a one-trick pony”- In addition to balance sheet lending, life

insurance companies are teaming up with private and public capital sources

for placing debt and equity through fund management vehicles.

► “Gumby prepayments” - With rates close to record low levels, lenders

compete by offering extremely flexible prepayment privileges for fixed and

floating rate loans (e.g. yield-maintenance and declining balance instead of

Defeasance).

John Oharenko, a director of The Real Estate Capital Institute®, observes,

“Lenders are awash with cash, but still maintain funding discipline in light

of regulatory oversight and industry oversight.  Even as rates stay low and

leverage levels tighten, most lenders will still stretch for the ‘right’

deal.”

For a complete copy of the company’s news release, please contact:

Jeanne Peck, Executive Director

director@reci.com

www.reci.com