GRS Group sent a team of its professionals out to Las Vegas last month for the 18th Annual Western States Conference. One of the attendees was Mark Halloran, a business development director with the firm who is based in New York City. The multifamily sector continued to be widely discussed by commercial real estate professionals, he reported. He also spoke to us about the different types of lenders who are entering the sector, what foreign investors are after and talk about the industry potentially overheating.
Was there a commercial real estate sector at the conference that seemed to get more financing attention than others? Is multifamily still the most popular?
Multifamily is still king. There was some positive some discussion about senior and student segments and office as well, but the multifamily rental sector still tops the charts.
Are there any new lenders in that sector that you weren’t seeing as much of before?
The life-insurance-company lenders have taken up the lending on multifamily as Fannie Mae and Freddie Mac have had to manage their originations to a certain cap, so they are keeping their powder dry for the fourth quarter and may be pricing themselves out of some deals. Life companies are stepping in and putting their allocations toward multifamily. A few brokers I spoke with at the event send that life-company allocations to multifamily deals are making it harder to close on other property types.
I’m also seeing a lot more CMBS lenders doing multifamily deals that normally would have been done, or at least competitively quoted, by Fannie or Freddie.
Are we seeing more foreign investors now that our economy seems more stable than other countries?
We see foreign investors coming into the mix in the big primary cities, such as New York City, Los Angeles, Chicago and Dallas in the form of buying multifamily assets. It’s often done through an adviser, like Cushman & Wakefield or JLL or CBRE versus directly from the lenders. But there is a bunch of activity. Almost every day there’s an on-line piece about the volume of Chinese or Middle Eastern Sovereign Funds buying into trophy assets in NYC and other primary cities. Even the Canadians are in the mix.
Is there any sector that investors are shying away from?
Nothing strikes me as in the no-fly zone (yet), and there continues to be new entrants to the lending side of the equation hungry for deals. In addition to multifamily, there continues to be major interest in self-storage facilities and industrial warehouse. Hospitality seems to still have its luster. That’s a pretty brisk market out there. As I mentioned earlier, some segments nay be the victim of Fannie and Freddie lending caps; as life companies and CMBS fill that void, allocations to non-multifamily assets may be diminished.
Did you learn anything that surprised you at the conference?
Multifamily is still the big story in terms of refinancing existing properties. We also are seeing some of the bigger lenders active with all property types. From construction lenders, GRS Group is seeing a continuing focus multifamily assets for rental and condos, for both ground-up and substantial rehab. There is a lot of tax-credit money out there for low-income housing as well. It’s taking place from the big bank level to the more regional-sized lenders.
There is a lot of activity out there. Everybody I talked to said they were very busy quoting business, but there is a lot of capital chasing these deals. There’s a pretty big pool of deals, but if you have a larger amount of players go after them, it can be hard to sign up. Fitch recently came out with a piece on CMBS lending that advised that we may be near the top of a seven-year cycle from when everything imploded in 2008. It wasn’t warning that we’re going into a recession, but that we should be alert to the seven-to10-year real estate cycle that is generally acknowledged in the CRE community. Fitch noted that some of the origination platforms hadn’t been around when the CRE cycle blew up into a recession, and sees some “weakening loan characteristics, declining underwriting quality and concerns about originator, banker and rating agency competition.”
What services would you like to highlight that GRS Group provides to the lending community?
The amount of capital out there from varying sources continues to be an opportunity for GRS Group since we are able to service GSE, life companies, CMBS, and bank lenders and equity players because we can provide all of the services that they need, from traditional environmental, property condition and construction advisory to ALTA surveys and complete title and escrow services. That continues to allow GRS Group to enter the real estate cycle at multiple spokes along that wheel instead of being pigeon holed and only being engaged when there is a new debt transaction. It’s a much bigger universe for us to employ our suite of services.