Quadrant shifting lending strategy in H2 2016

Quadrant Real Estate Advisors has completed $2.4 billion in loans (closed, committed or under application) year-to-date but will shift its focus away from construction loans as it pursues a previously established $3.5 billion target for 2016.

The firm will focus its efforts on three- to seven-year fixed or floating rate loans on core, stabilized properties as it seeks to complete the more than $1 billion remaining balance on the yearly target.

“Since we have done a lot of 10- to 15-year debt so far this year we are looking to balance duration with a real focus on five-year,” Walt Huggins, a senior member and EVP with the firm responsible for debt placements, told Real Estate Capital.

“Our feeling is that real estate fundamentals are generally in good shape, but we are watching multifamily construction and we are being very selective there because we want to be careful not to get into markets that are overbuilt.”

Quadrant is positioned well as some investment groups feel the pressure of increased regulations and the conduit market in particular, while still competitive on large deals, has experienced subdued performance this year, Huggins said. The firm will continue to write loans between $25-$300 million, with a preference for those greater than $50 million.

“Borrowers are feeling like there are fewer lenders in the market as many banks, conduits and the agencies dial back a bit, which puts us in a good position,” Huggins said. But he added, Quadrant invests on behalf of insurance company lenders and private equity funds, and competition from those groups remains strong.

Huggins also stressed that while the firm is shifting focus away from construction for the balance of 2016, he expects to pick it back up in 2017.

“We like the loan product, we just need to focus resources on permanent loans to make sure we hit our targets,” he said.

In one recent deal from May, Quadrant provided $250 million on behalf of AXA Equitable Life Insurance Company for the refinancing of a 29-story office building at 31 West 52nd Street in Midtown Manhattan, while MetLife an additional $250 million.

The firm will continue to stick with the same markets and major product types in top 10 metro cities including New York, Boston, Washington, DC, San Francisco, Los Angeles, San Diego, Seattle and San Diego, as well as Chicago and Denver, at loan-to-values (LTVs) no higher than 65 percent. Europe and Ireland are still very much on the radar, Huggins added.

The spreads for a 65 percent LTV loan are roughly 245 basis points (bps) plus 30 day Libor on floating and 185 bps plus “like term UST rates,” according to a memo from the firm.

The firm noted that, generally speaking, 10-25 bps will be added to spreads quoted on LTVs higher than 75 percent, but that spreads on LTVs below 50 percent will be 10-15 bps lower. Floors may be used if there is “a sharp decline” in the UST rates, and mezzanine financing is also available for stabilized assets, up to 80 LTVs.