July 8, 2015

Why We're Still Not at the Top of the Market for Real Estate Lending

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Everyone knows that real estate lending is robust, but is it at its peak, with nowhere to go but down? Probably not, according to the speakers at Bisnow's LA Capital Market Summit last week, though there are a few wild cards. (One of those isn't interest rates; everyone knows they're going up.)

Snapped: the equity panel, Colony Capital executive director Paul Fuhrman, Allen Matkins partner Michael Matkins, who moderated, and American Realty Advisors CEO Stanley Iezman. In 2009, everyone thought there was too much risk to make investments, so investors waited. Now, when it could be at the top of the market, investors are chasing yields by pouring capital into secondary and tertiary markets. But is now really the top of the market? 15% returns are still possible, but there seems to more risk than there used to be, including macro factors that are in no one's control (think: Greece). Investors are having to search further and further in the risk curve to get those yields.

Here are Cantor Commercial managing director Jonathan Schurgin and George Smith Partners managing director Steve Bram (not pictured: Pircher, Nichols & Meeks partner Michael Scheinberg, who moderated the term lending panel). The spectrum of term lending's healthy these days, according to our speakers. Life companies still have cash to lend, and while their terms won't be quite good as elsewhere, they're flexible. Banks are still a good source, with credit unions for smaller deals in less-known markets. CMBS is now doing a great job of getting deals financed, a complete turnaround from only a few years ago, and it isn't likely the industry will suffer the same kind of contraction again, even if the economy softens.

Here are OneWest Bank EVP Scott Shepherd and Mesa West Capital co-CEO Jeff Friedman. Demand for bridge and mezz capital is robust for value-add properties in particular, and there are a lot of those in a lot of markets, our speakers said, with bridge and mezz starting where the bankers stop on those deal. But the market isn't back to the point—as it was in the mid-2000s—of "You can have money if you can fog a mirror."

Dekel Capital founder Shlomi Ronen (left with Calmwater Capital managing director Larry Grantham, Scott and Jeff) moderated the bridge and mezz panel. Multifamily deals in the bridge and mezz space have spiked recently, perhaps because the agencies have raised the cost of capital, and are a little pickier than they used to be, our speakers said—such as for some rehab deals. That's created opportunities for bridge and mezz lenders.

This is Realty Mogul SVP Philip Block and Partner Engineering and Science REPA Jenny Redlin, who moderated the alternative finance panel. Crowdfunding is still a little unfamiliar, but it's an up-and-coming method of real estate finance, our speakers explained. The first successful deals online date back only two or three years, though the concept's been around a long time. One important difference between online crowdfunding and traditional finance is the speed with which investment capital can be raised, especially for smaller deals.

Here are Jenny and Fundrise VP Ryan Granito. Besides speed, the new crowdfunding technology allows a wider array of investors, our speakers added. Investors from all over the country can have access to deals all over the country, which they might never have known about before. Also, for smaller developers, it's a supplement or even replacement for "friends and family" capital.

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Downtown Turns Up the Heat

Downtown LA remains hot and keeps getting hotter, with renewed interest in condo development, says Loeb & Loeb partner Paul Rohrer (here with daughter Mimi). Paul explains that rents remain high, motivating buyers to move into condos if financing is available. Paul adds that Millennials continue to locate near public transit and insist on walkable neighborhoods—such as those found Downtown. He adds that while all of Downtown is hot, the Arts District has emerged as one of hottest sub-districts in the country. However, with the city in the process of issuing a draft ordinance shaping how development is done in the Arts District, there is uncertainty in the development community as to what the rules are going to be going forward. Currently, developers and lawyers are working with the Planning Department to shape those rules so that they encourage, not slow down, development. Paul also notes that South Park has become an established residential neighborhood with more new projects commencing. For more info on our Bisnow partner, click here. Check out Paul at our upcoming Future of Downtown event, Tuesday, July 21 (register today).


The Real Cost of Ignoring Cybersecurity

Sobering stat: 60% of small and midsized businesses that can't recover from a catastrophic data loss close their doors within six months, according to Bytegrid chief revenue officer Drew Fassett, who'll be a panelist at Bisnow's annual Data Center Investment Expo, July 15, at The Ritz-Carlton in Tyson's Corner, VA. Drew says a growing number of small and midsized businesses are concerned about disaster recovery capability as they realize cybercrime is a real and growing risk to their data. An average data outage can last up to 90 minutes. The cost of retyping 20 MB of sales data can run $17k, while the same amount of accounting data can cost $19k if they don't have security measures in place.

Drew adds changes in regulations and compliance, particularly in the healthcare industry, continue to spur growth in data demand as the industry shifts from paper documents to electronic retention and the sizes of images like X-rays has grown. Drew says there's been an expeditious increase in access to real-time data and analytics over the past seven years, especially on mobile devices.

Now Bytegrid has shifted its focus from being a wholesale data acquirer to a provider of what Drew calls “geographic redundancy.” Bytegrid has created a hybrid solution of managed services and cloud technology as customers have embraced the cloud as secure alternatives for their data. To prepare for that growth, in March, Bytegrid acquired Sidus, a Maryland-based company specializing in compliance. Bytegrid also wants to target second-tier cities that have a lack of tier three or four capacity as the company expands its national footprint. To that end, it recently purchased the 333k SF Cleveland Data Center (pictured) and will add 30k SF of mission-critical data center space with over 4 MW of power capacity. Drew predicts customers embracing cloud technology will grow as they develop core competencies and Bytegrid, with over 750k SF of space across the country and a growing cloud platform, will be able to meet the demand.

To learn more, please join us for Bisnow's Data Center Investment Expo, July 15, at The Ritz-Carlton in Tysons Corner, VA. Sign up here!

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