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Five Hot Capital Trends

What are debt providers into nowadays? (Their Tinder profiles are poor indicators.) We asked mortgage bankers at ColumbiaNational Real Estate Finance about what they're seeing and how to find unearth acquisition opps.

1) CMBS is biting on anything it can chew.


Josh Stone (flanked by his newest colleagues, Kevin Tehan and Brett Weil, at a recent ULI event) has seen interest-only CMBS deals at 75% LTV and higher at 30-year amortization; in fact, he’s working on a 10-year, interest-only 71% LTV now. In other words, the CMBS lenders are willing to go there, he says, but smart borrowers know that if they don’t need interest only, there’s no reason to go for a lenderless loan.

2) Life companies love B’more office.


Institutional lenders aren't thinking in terms of primary or secondary markets, Josh says, but rather about whether they know the market—and life companies know Baltimore. They like the JHU and UMD biotech corridors and the Pratt Street waterfront (which Brett snapped this morning). Even a few blocks farther from the water, where offices keep trading tenants but occupancy holds steady, life companies will lend—at least for low leverage. (Once the loan heats up to 75% LTV, CMBS gets a turn.) In the 'burbs, a property within an I-83 or 695 office park that needs a refi can get it, Josh says. One-off buildings have a tougher time, but CMBS will go in if it's well leased.

3) Find the quality that REITs avoid.


To buy at scale, REITs have very specific boxes that acquisition targets need to check. A shopping center might be 99% leased in a 99% occupancy market but be anchored by a fitness center, which REITs tend to avoid (though we can’t imagine why anyone wouldn’t want to get physical). Josh also says REITs might avoid a single-tenant industrial facility with just a five-year lease. That’s too much legwork for a scaled-up REIT, but a local player can do its homework to see the property's and submarket's benefits. Even if there are plenty of other local bidders, he tells us, removing the REITs from competition can bring the cap rate up to 7.5% to 8%.

4) Small multifamily investors are growing.


Investors that started off buying 10- and 20-unit buildings and putting together portfolios have grown into the ability to take on 100- and 300-unit and larger buildings (like the 132-unit Curtis Bay Village that Greysteel is marketing, above). They’re not buying Class-A, Josh says, but they’re filling the investment gap right below REITs. In the past year, he financed local players’ acquisitions of a 330-unit property and a 500-unit one. These investors also are finding discounts with family-owned, 50-ish unit properties that haven’t been well managed. The current generation of owners doesn’t want to take care of them, and they’re a headache for national buyers, he says, so midsize investors are filling the hole.

5) Fannie's got a popular new program.


Brett (snapped recently with Maryland Comptroller Peter Franchot and Goldberg’s New York Bagels owner Stanley Drebin) joined ColumbiaNational two months ago to work on FHA loans and is finding interest from borrowers in Fannie Mae’s new green refi loan, which offers proceeds 5% above the typical LTV for energy- and -water-saving property improvements. Stanley is Brett’s father-in-law, and the Pikesville shop—which Peter recognized as a small business that’s contributed tax revenue for schools, roads, and environmental concerns, as well as wage growth for employees—has been a popular hangout among local developers and operators since it opened in '98.