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Debt's Back In Vogue

Debt's Back In Vogue

From major institutional investors and banks to CMBS,  lending is back, we learned during our fourth annual Atlanta Capital Markets Summit on Tuesday at the W Midtown. (Even kindergartners are sharing crayons at a higher rate.)

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Here's our debt panel: Bull Realty's Michael Bull, GE Capital's Ed Coco, Goldman Sachs' Rod Reppe, Wells Fargo's Melissa Frawley, and TriMont Real Estate Advisors' John Charles. GE Capital is on track to lend $4.5B this year, up from $3B, while Goldman Sachs is set for $6B, 40% of those power center and grocery-anchored CMBS loans. Wells Fargo's lending is up 40% this year in the Atlanta office; it's even doing 10-year loans. And John says even smaller regional banks are increasing lending.
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Developers and owners need "skin in the game" this time around, our panelists say. Back in '07, a borrower would only have 5% equity in a deal, Ed says. That game is over; lenders want borrowers committed to the asset and who have local market knowledge. (No more blindly pointing at a globe and trying to get a loan for that location—no matter how good a drinking game that is.) Rod agrees, saying that loans are being underwritten on cash flow, which has "really kept a lid on things."
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Cap rates will rise some, but most of our panelists are confident that the low interest rates will continue. "I think the market has kind of normalized," Ed says. Cap rates are probably going to go up another 50 bps, he estimates. He credits Bernanke for steering the economy through the Great Recession. "The US is probably the strongest market in the world, and our banks are the strongest in the world." (It's an non-Olympic year, so we need to find competition somewhere else.)
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John was the contrarian, concerned about the ongoing low interest rates. "There's just  so much money floating around the economy right now... you've got to figure inflation is coming," he says. "I have some  fears about what the future is."
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During our schmooze, we bumped into The Georgia Board of Regent's Lee Nelson and Bank of North Georgia's Mark Hancock. Lee tells us UGA recently completed its satellite campus in Forsyth. And the university system just issued an RFP for an advisor to look into privatizing on-campus student housing throughout the state.