CRE lenders are scrutinizing borrowers more rigorously than at any previous point this real estate cycle, delegates heard today at accounting firm WeiserMazars LLP’s New York Commercial Real Estate Summit in Manhattan.
“Over the last 6-12 months, lenders have been much more focused on sponsorship and track record,” said Drew Fletcher, EVP of The Greystone Bassuk Group. “High quality assets and [sponsors with] deep track records are getting access to the lowest cost capital… but it’s definitely more challenging for sponsors with less experience.”
The big US banks are writing more conservative loans as they approach construction loan allocation limits, focusing more and more on stable assets and established sponsors. Loan-to-values remain well below levels seen during the last boom, panelists said.
“People are still really cautious and you don’t see the crazy things that were happening in 2006 and 2007,” said Reid Liffmann, a managing director with Angelo, Gordon & Co. “There is good liquidity for good deals with good sponsorship.”
That said, private lenders and others seeking higher yields and writing riskier loans have become a more sought after commodity, especially as CMBS plays a smaller role in the market, giving them more leeway to pick and choose sponsors as well.
“The volatility was tremendous, [but] the market has had a tremendous reaction to it,” said Michael Maturo, president and CFO of RXR Realty, referring to the months-long CMBS spread widening that has only partially reversed course. “There is always someone there to fill the void… [and] plenty of money out there to find to get your projects financed.”
Stephen Alpart, managing director at Pine River Capital Management, noted that “we look at the volatility as a good thing for the market,” and that it is only opening opportunities up for firms like his. But that doesn’t he isn’t scrupulous in choosing who to do business with.
“We often start with the sponsorship even before we look at the real estate,” he said. “It doesn’t have to be a big name, but someone with expertise in their local market.”
In and out of the gateways
Maturo noted a “deceleration” in the US market, particularly as the gateway markets heat up. He and other panelists said this has caused a gradual movement by developers out of top cities.
“The issue isn’t availability [of capital], the issue our clients are facing is identifying good product… it’s becoming more challenging to find sites suitable for development at prices that makes sense,” Fletcher said, noting that there’s been “no material correction in land pricing.”
In New York City, for instance, developers have moved out to the boroughs, starting with Brooklyn and Queens; but now they are pushing into locations further upstate and in New Jersey, mainly Jersey City, where there’s been significant development booms and land prices are much lower.
“It’s been a long time since someone was able to buy land and build a multifamily residential building that made sense [in New York],” Fletcher said. “The market is driving developers to seek out opportunities further from the core and I think, on balance, that’s a good thing.”