Creativity Rules the Capital Markets
It's no secret that the capital markets have been heating up. At Bisnow's SoCal Capital Markets Summit yesterday, our all-star panel told us how they're pushing the envelope.
Some 150 attended our event at the Casa del Mar hotel in Santa Monica. The first of our two panels dealt with debt. (A chandelier can class up any crowd.)
Mesa West Capital principal Jeff Friedman points out that in previous cycles, foreign investment was dominated by money from Europe and the Middle East. With Chinese and other Asian capital, LA has gone from a second-tier city to a primary market, Jeff says, citing recent major land purchases and investments Downtown.
Brad Wilmot, who runs Wells Fargo's real estate capital markets business on the West Coast, says there are more CMBS originators this year than same time last year. (They're like gray hairs.) He sees underwriting standards deteriorating a bit and margins compressing due to the increased competition. We're getting back into a volume-based origination system, he says.
Liberty SBF VP Zach Murphy sees a lot of money coming off the sidelines. A second trend: the awakening of Middle America. Many of the secondary and tertiary markets that lagged far behind the core markets are catching up. Zach says Liberty differentiates itself by doing smaller deals and keeping an open mind. Example: a deal where the main sponsor is a felon who spent time in prison on a drug charge.
Meridian Capital Group managing director Seth Grossman says it can be penny wise and pound foolish to go with a cheap rate. Sometimes you're better off going with a debt fund that will figure out ways to be creative. He just closed a multifamily portfolio in Phoenix with a debt fund, passing on an agency bid that was 100 bps tighter.
Our moderator, Partner Engineering & Science president Joe Derhake, quips if commercial real estate were a gold mine, he'd be selling buckets and shovels. (So that's where all those groundbreaking-ceremony shovels come from.) The firm specializes in Phase 1 and property condition assessments, and construction risk management.
Jeff sees opportunity in low cash-flowing multifamily deals in the better markets where sponsors are doing heavy rehabs. Brad did a ton of multifamily deals last year; today, he's having to pick his spots, like secondary markets or assets that don't have stabilized occupancy. With CMBS loans coming due, Zach sees opportunities to do short-term bridge loans, getting the properties to a point where they can be taken out by the conduits. Seth believes you need competition on a deal to get the client the best service. But shot-gunning the deal out to 30 lenders won't get the client much attention, either.