The rising interests rates, coupled with the anticipation of a stronger economy, has signaled somewhat of a shift in the investor’s appetite and lending patterns seen by his shop.
GRS Group is uniquely positioned to view actual deal-flow patterns across a broad range of capital sources such as banks, CMBS, agency, insurance companies, and private equity. We see a deal essentially at the moment it is committed, so with the high volume, breadth of clients, and geographic coverage we can see patterns emerge on a week-by-week basis. As a result we can often gauge which investment type and lending source is either in or out of favor. We use that information to focus our sales efforts, but more importantly we use that intel to the advantage of our clients. Broad examples of market movement might be apparent shifts form Agency-to-CMBS, or CMBS-to-Local Banks. However, on a more micro level, we may see lending patterns emerge in various parts of the United States, Europe, Asia, or South America, during certain periods.
One recent observation that we are seeing now is a shift away from lower risk, investment grade properties, to smaller and riskier assets. This appears to be driven by the rising interest rates and buyers willing to take on more risk for the potential of higher returns.
Naturally, in this environment there needs to be greater emphasis on quality due-diligence, something I’ve noticed having been through many cycles since 1987. We are at the point where all the low-hanging fruit may have been picked, and we appear to moving toward a period where we need to be more clever as entrepreneurial real estate investors and lenders look for higher returns. Coming in this wave are the deals are that are more likely to end up in the weeds, so there should be an expected renewed emphasis to double-down due-diligence. We appear to have exited the period where “no harm” investments were in favor, and that type of deal flow is dwindling.
About the Author: Matthew McGovern, based in New York City, is a seasoned veteran with over 20 years experience in assessment and technical due diligence. He is well known in CMBS circles and is part of GRS Group’s National Leadership Team.