4 Financing Trends of 2015
2014 was a year of aggressive financing and record cheap debt, and even with depressed energy markets, 2015 is shaping up to be similar. That's why we're excited to to bring together some of the biggest names in the business for Bisnow’s Capital Markets Summit March 9. In the meantime, here are four capital markets trends that'll define 2015.
1. Leverage Up, Cap Rates Down
Today’s rates have Camden president Keith Oden (a panelist) scratching his head. The latest indications on 10-year bonds are in the 3.5% range all-in for fixed-rate unsecured loans. Meanwhile, aggressive private borrowers are doing floating rate and shorter term (three to seven year) loans in the mid-2% range. (Keith’s even heard of low 2% deals.) They can buy multifamily properties at 75% LTV (lenders are willing to give high leverage) and 4.5% cap rates and still get an attractive 6.5% or higher cash-on-cash return.
2. Competition Pushes Players Out Of Acquisitions
Camden isn’t comfortable playing in that realm, so the firm has slowed its acquisition activity. (It bought only one property in 2014, a $63M Atlanta deal.) Instead, Keith tells us, Camden has bulked up its development pipeline to $1.1B, one of the largest in its history. Those deals have much better returns. (Pictured, Camden City Centre II, which delivered in Houston this cycle.) Keith’s got a close eye on Houston and says thus far, falling oil prices haven’t impacted Camden’s local portfolio. There hasn’t been a single person asking for concessions or a lease cancellation for losing his energy job. On the other hand, new supply has started to have an impact in some submarkets.
3. Private Buyers Step In
The drop in oil prices has highly leveraged buyers and some institutions pulling back from investing in Houston, Avison Young principal Darrell Betts (another panelist) tells us, but well-capitalized private buyers are stepping up to fill the gap. He says Houston remains one of the hottest places in the world to invest long-term, and smart players will take advantage of the low cost of capital and jump on the opportunity to buy without as much competition.
4. Oil Prices Can't Stop The Feeding Frenzy
But less competition doesn’t mean all properties are getting fewer offers—92 potential buyers have showed interest in the last few months on an MOB Darrell’s listing, and a Class-B office near The Woodlands has 75 investors looking at it. And the investors that are left are the stronger players that definitely can close, Darrell (pictured with principal Josh LaRocca) says. He doesn’t see pricing taking much of a hit overall, although properties with near-term lease roll may be challenged. And he does think some sales will fall through, but he suspects they’ll come back to market quickly and probably at the same pricing. Darrel is “very, very, very, very” bullish on Houston and has a very bold prediction: Within 24 months, most people let go by energy companies will be rehired in the industry.
Come hear more from experts like Stewart Title’s Ted Jones and Weingarten’s Drew Alexander at Bisnow’s Capital Markets summit—Monday morning at 7am. Register now!