Why We're Still Not at the Top of the Market for Real Estate Lending
Everyone knows that real estate lending is robust, but is it at its peak, with nowhere to go but down? Probably not, according to the speakers at Bisnow's LA Capital Market Summit last week, though there are a few wild cards. (One of those isn't interest rates; everyone knows they're going up.)
Snapped: the equity panel, Colony Capital executive director Paul Fuhrman, Allen Matkins partner Michael Matkins, who moderated, and American Realty Advisors CEO Stanley Iezman. In 2009, everyone thought there was too much risk to make investments, so investors waited. Now, when it could be at the top of the market, investors are chasing yields by pouring capital into secondary and tertiary markets. But is now really the top of the market? 15% returns are still possible, but there seems to more risk than there used to be, including macro factors that are in no one's control (think: Greece). Investors are having to search further and further in the risk curve to get those yields.
Here are Cantor Commercial managing director Jonathan Schurgin and George Smith Partners managing director Steve Bram (not pictured: Pircher, Nichols & Meeks partner Michael Scheinberg, who moderated the term lending panel). The spectrum of term lending's healthy these days, according to our speakers. Life companies still have cash to lend, and while their terms won't be quite good as elsewhere, they're flexible. Banks are still a good source, with credit unions for smaller deals in less-known markets. CMBS is now doing a great job of getting deals financed, a complete turnaround from only a few years ago, and it isn't likely the industry will suffer the same kind of contraction again, even if the economy softens.
Here are OneWest Bank EVP Scott Shepherd and Mesa West Capital co-CEO Jeff Friedman. Demand for bridge and mezz capital is robust for value-add properties in particular, and there are a lot of those in a lot of markets, our speakers said, with bridge and mezz starting where the bankers stop on those deal. But the market isn't back to the point—as it was in the mid-2000s—of "You can have money if you can fog a mirror."
Dekel Capital founder Shlomi Ronen (left with Calmwater Capital managing director Larry Grantham, Scott and Jeff) moderated the bridge and mezz panel. Multifamily deals in the bridge and mezz space have spiked recently, perhaps because the agencies have raised the cost of capital, and are a little pickier than they used to be, our speakers said—such as for some rehab deals. That's created opportunities for bridge and mezz lenders.
This is Realty Mogul SVP Philip Block and Partner Engineering and Science REPA Jenny Redlin, who moderated the alternative finance panel. Crowdfunding is still a little unfamiliar, but it's an up-and-coming method of real estate finance, our speakers explained. The first successful deals online date back only two or three years, though the concept's been around a long time. One important difference between online crowdfunding and traditional finance is the speed with which investment capital can be raised, especially for smaller deals.
Here are Jenny and Fundrise VP Ryan Granito. Besides speed, the new crowdfunding technology allows a wider array of investors, our speakers added. Investors from all over the country can have access to deals all over the country, which they might never have known about before. Also, for smaller developers, it's a supplement or even replacement for "friends and family" capital.