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CMBS Coup

WASHINGTON DC 09.28.2017

WASHINGTON DC STATE OF OFFICE

Development, Design, Finance & Investment, Tenant Demands, and Asset Management

Paul DeMartini -- Tishman Speyer
Brandon Ernst -- Lincoln Property Company
Chuck Watters -- Hines
CMBS Coup
With new CMBS conduits entering the mix, HSM Equity Partners has refinanced two company-owned Dallas shopping centers, SVP/managing director Chance Johnson tells us exclusively.
 
Chance Johnson and Greg Miller
Might this earn Chance a picture on the wall, too? We snapped HSM Equity Partners prez Greg Miller (right, with Chance) at HSM's offices. Greg tells us they arranged non-recourse, fixed-rate, permanent financing for Pepper Square I and II and Central Forest Shopping Center. The retail loans—dollar amounts undisclosed— carry 10-year terms with a 5.5% fixed rate secured through Wells Fargo's New York CMBS group. Chance says while the days of overly aggressive high-leverage loans are long gone, CMBS lenders are re-entering the market with more reasonable terms, shorter amortization, lower LTVs, and better underwriting. He says the wheels are in motion with other CMBS conduit lenders, as well. HSM recently executed a loan app with a brand new conduit group in New York—and others preparing their pools and gathering assets to do the same, he adds.
Pepper Square I and II
Pepper Square I and II (above) has 278k SF on 23 acres at Preston and Beltline roads. Chance tells us Pepper Square was last refinanced around late 1999 at a high 9% on 10-year terms. But there was a hyper-amortization clause, which provided an anticipated maturity of 10 years, though the actual term was 30 years. The thought of a large maturity in late 2009 was enough to make you cringe, he recalls. However, the hyper-amortization clause provided the additional time needed to get the refi done, a blessing as lenders are just now beginning to dip toes in the water. Initially applied for as an on-book loan, as closing approached, Wells Fargo  was preparing a CMBS pool to take to market. With a few tweaks, the application was changed to convert it to a CMBS loan. As company-owned assets, these properties are long-term holds, which makes reducing the interest from 9 to 5% for another 10 years a major plus.
Central Forest Shopping Center
Central Forest Shopping Center is 95k SF on eight acres at the North Central Expressway and Forest Lane. Greg says this refinance is encouraging because major institutions like Wells Fargo are getting back into the CRE financing business with good terms. As a result,investment business will pick up and buying and selling will start happening. Secondary markets, however, will remain challenging. “In many cases, borrowers and lenders will kick the can down the road as the ability to sell or refinance properties in smaller markets will remain challenging,” Greg tells us. “Everything else, even the good real estate, will be really tough to attract the attention of lenders or buyers.”