Thursday, February 14, 2019

ANNUAL INCOME PROPERTY FINANCE CONFERENCE SUMMARY FEBRUARY 2019



ANNUAL INCOME PROPERTY FINANCE CONFERENCE SUMMARY
FEBRUARY 2019

     I just returned from the annual Commercial Real Estate Finance Conference in San Diego, where we met with our nationwide lenders from banks, bridge, CMBS and of our life companies.  Without exception, the consensus is business as usual with lending goals of equal to last year.
    Fears of an economic slowdown late last year have been eased by stronger-than-expected corporate earnings, a more accommodative Federal Reserve and signals of strength from the labor market.
   Data from the Labor Department showed U.S. nonfarm payroll numbers rose a seasonally adjusted 304,000 in January, the unemployment rate rose to 4.0% and average hourly wages for private-sector workers grew 3.2% from a year earlier. Economists surveyed by The Wall Street Journal had forecast that employers would add 170,000 jobs during the month and the unemployment rate was steady at 3.9%.
    The strong data follows Federal Reserve Chairman Jerome Powell’s comments that the case for raising rates “has weakened somewhat,” which eased concerns about monetary policy. The juxtaposition of Mr. Powell’s remarks and the stronger-than-expected jobs report has some analysts speculating the Fed may have been too quick to cool its pace of interest-rate increases.
    “The single most important thing now is the negotiations with China,” said Brian Rose, senior economist Americas at UBS Global Wealth Management. “This is a big risk for the economy and stock market.”
    “If we have a Cold War between China and the U.S. like we had with Russia and U.S., then we have a problem,” said Didier Rabattu, head of equities at Lombard Odier Investment Managers, who is optimistic that tensions will calm in the coming weeks. The consensus as of my writing is that Trump is going to make a trade deal with Xi in the short-term.
    Let’s not forget to keep an eye on the price of oil. I have been saying to watch the price of oil for several years, as interest rate seem to move in sync with oil. U.S. crude oil added 1% to $54.33 a barrel, and as of this writing, the 10-year Treasury is down to 2.65%. However, several of the best oil prognosticators is calling for oil to rise to $70-$75 by June as Russia and OPEC maneuver to push the price of oil higher.


PRODUCT TYPES

    Hospitality Permanent Financing - I am in closing on a $35,000,000 Residence Inn. 1) We had a 5 year bank quote with flexible prepay at 1.70 over swaps with a hedge which resulted in a fixed rate at 4.44% with IO for 2 years. 2) We also had a CMBS quote with 10 years IO.  CMBS continues to be the source for maximum leverage underwriting senior debt to hi-8%'s to low 9% debt yield with spreads in the mid to low-to-mid 200's over the Swap.  I have also received quotes recently from several that added mezz to get down to 8.5% debt yields using a combined 1.10 DCR. We have also seen spreads as low as 150 for lower leverage loans. 2) Life companies are underwriting to 12% debt yield with rates in the low to mid 200's over the 10-year Treasury for the right properties and borrowers.   
   Hospitality
 Construction Financing - Banks continue to be under pressure to dial back commercial construction lending, particularly on hospitality. That said, I still have several hospitality construction loan at 65% LTC for a select service hotel. I also have a couple of banks that provide non-recourse hospitality construction loan up to 75% LTC with a combination 50-55% senior and mezz for the balance. Finally, we have a great nationwide SBA source which can get to 85% LTC at Prime +2% up to $30 million.
   Multifamily We work with the largest private Fannie/Freddie lender in the country which has quotes great rates through the small and large programs. I just put a $1 million loan under application with Freddie for a 12 unit 1955 multifamily at 4.86% 10/30, PAR and low processing cost.
    Multifamily also continues to be a favorite and our life companies have been coming up with some amazing pricing. We continue to see spreads inside of 100 basis points over the 10-year Treasury on large lower leverage loans.
   Agency Bridge Loans are available from $2 million unstabilized at a 1.0 DCR for 2-3 years up to 90% of current value and 80% of stabilized for 1 point in and 1 out (waived if you take their perm) at L+400.
   Industrial financing continues to be the favorite of all lending sources. Life companies spreads ranged from sub-120-170 depending on leverage. Rates are slightly higher for office, retail, medical office and self-storage.
   Office & Medical Office - There is plenty of capital for office and medical office.
   Unanchored and Strip Retail - We continue to have life company sources for unanchored and strip retail.
   Big Box Retail space continues to be difficult due to the difficulty re-leasing these spaces as the retail industry closes and downsizes their retail stores to showrooms while shipping inventory direct to customers from big industrial logistics distribution facilities.
      Self Storage continues to be hot and one life companies, CMBS and banks are all want and are willing to go to 75% LTV, 8%-10% debt yields and DCRs in the 1.25 range to get them.
   CMBS of challenged locations/all product types - We have a couple of excellent sources for challenging locations for al
Bridge Lenders - With pressure on the banks to be more conservative many have turned their focus to bridge lending in addition to our traditional bridge lenders and we are seeing several get more aggressive with less recourse and flexible prepayment provisions. On large transactions we are seeing pricing as low as LIBOR plus even sub-200, but again those are very large transactions. For deals under $25 million we are seeing pricing as low as L+300 for multifamily properties and goes up  from there. 12-month lock out with no make whole provision and full term I/O and typically 1 point in and 1 point or less out. With the CMBS sources they will usually waive the exit fee if you roll into their permanent program. Some of the CMBS have their own internal mezz, which can get them up to 80% LTV.


LIFE COMPANY RATES                                 5-Year               10-Year
Multifamily *                                                    4.27%-4.97%    4.21-4.91%
Office, Industrial, Shopping Center and Self-Storage
                                                                           4.19%-4.89%   4.52%-5.27%
*Our life companies are PAR to us, and we have been continuing to beat the agencies on interest rates. Amortization run up to 30 years depending on the age and condition of the property.

SAMPLE CLOSINGS




WHY WESTCAP?
     I have 40+ years experience arranging income property financing, ran two major construction lending operations, co-developed over 1 million SF of income property and have managed my own portfolio of retail, medical office and residential income properties since 1989, and have been president of 3 successful mortgage banking companies. I have arranged $600 million of hospitality construction and permanent financing the past 6 years, I handle all income property types. My focus is solely on arranging the best possible loans for my clients.
    WESTCAP was founded in 1988 and serves as a correspondent to 15 life insurance companies for which we service over $2.0 billion. Most of these correspondent relationships date back over 25 years, including Sun Life of Canada for which we have been the exclusive correspondent in Southern California for almost 30 years. We also represent non-correspondent life companies, multifamily agency sources, banks, construction lenders, bridge, mezzanine and equity, in order to meet all of our client's financing needs. We handle assignments ranging from $1,000,000 to $400,000,000 nationwide, and represent all sizes of borrowers including some of the largest developers in Southern California.
    WESTCAP is also a founding member of Q10 Capital, which is a network of 14 of the largest independent mortgage banking companies in the country with 22 offices throughout the United States, and a combined servicing portfolio in excess of $12 Billion. With a proprietary database sharing quotes, lender and equity intelligence we are constantly in a position to insure that we deliver the best sources at any given time for our clients.

    Call for rates on all income property types including hospitality, multifamily, industrial, retail, office, self-storage, student and senior housing. We even have a couple of bank sources which offer no prepayment penalty and a few who offer non-recourse. With a few exceptions our permanent lending sources are PAR to us.


Steve Bridges
Executive Vice President
Q10|WESTCAP
9960 Irvine Center Drive
Irvine, CA 92618
Office: (949) 387-9061 Cell: (949) 235-1540
www.westcapcorp.Q10Capital.com
CA RE Broker: 00465840



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