#CREF2020: What Borrowers Want

SAN DIEGO–Borrowers make real estate finance tick, and their needs are changing, both lenders and borrowers agreed here at the MBA 2020 Commercial Real Estate Finance/Multifamily Housing Convention & Expo.

“We all know this feels like a pretty liquid market; it feels pretty good,” said Tony Premer, Senior Vice President of Real Estate Investments with Pacific Life Insurance Co., Newport Beach, Calif. “There are times as a lender I wish I was a borrower. It’s an interesting time to be borrowing money.”

Steve Miller, Managing Director and Head of Green Street Advisors’ Credit Analytics Group, said the capital markets have been on a run. “There is a record level of private equity raised and dry powder,” he said. “A lot of that is recycling from deals from earlier in this cycle, but all systems are go for the market.”

One potential exception Miller noted: the public equity market. “Real estate investment trusts have been in the doldrums for about the last five years,” he said. “Their borrowed capital has been diluted because their share prices are below net asset value, which means they should be sellers. Recently they had a market upturn and broadly speaking, REITs are probably poised to grow now that their share prices are above net asset value costs across sectors,” he said.

Mortgage Bankers Association Chairman and CBRE Global President of Debt & Structured Finance Brian Stoffers, CMB, said a decade ago borrowers most often sought loans for office and retail properties. “Today, multifamily and industrial lead the list,” he said.

“Coming out of the last cycle we built a lot of Class A multifamily,” said Cassandra Clark, Managing Director with JPMorgan Asset Management. “That has performed for us for a long time. Now, for the most part, we don’t really see a lot of rent growth in that space, so we’re more focused on suburban multifamily and trying to diversify.”

Stephanie Holder, Senior Director with Invesco, said she has seen a similar pattern in high-end multifamily. “There is a lot of supply coming in,” she said. “We’re looking critically at multifamily and trying to find deals with long-term intrinsic value. We’re being really cognizant about the lead-in into rent growth on the higher end.”

Holder said it’s important to look carefully at the amenities a multifamily building offers before buying or borrowing against it. “Renters are looking for the full experience,” she said. “The building that you’re considering going into, does it offer those things? Can it compete on a long-term basis?”

Addressing the perennial question: fixed- or floating-rate financing, Clark said it’s hard to say you do not want to lock in fixed-rate debt right now. “It’s incredibly cheap,” she said. “I hope I’m not up here in a year telling you ‘I wish I had not locked in that rate a year ago because rates are now down to 2 percent,’ but it’s hard to imagine they could go much lower.”