Three representatives from leading bank, life and CMBS lending institutions discuss “The Commercial Real Estate Debt Landscape” at the Mortgage Bankers Association’s 2014 CREF/Multifamily Housing Convention & Expo at the Hyatt Regency Orlando.
Mortgage Observer sits in to cover their conversation.
The panelists: PNC Real Estate Executive Vice President and Head of Multifamily Scott Bassin, MetLife Managing Director and Head of Debt Strategies Gary Otten and Goldman Sachs Group Managing Director J. Theodore Borter
The moderator: Berkadia Commercial Mortgage Chief Executive Hugh Frater
10:57: Mr. Frater to the panel: Your focus has largely been on primary markets. Has that changed at all?
Mr. Bassin: From a banker’s perspective, we’re more focused on good and strong sponsorship than we are on primary and secondary markets
Mr. Borter: As a conduit lender, we look for all markets and make sure we have good real estate in whatever market we’re in.
Mr. Otten: The bulk of our activity will be focused on primary markets.
10:55: Mr. Frater to the panel: What is your favorite property type apart from multifamily?
Mr. Bassin: Multifamily [laughs]. Right now there are interesting opportunities in the industrial space.
Mr. Borter: At Goldman we see a lot of opportunity in C mall properties.
Mr. Otten: For MetLife it’s industrial properties and fortress malls.
10:54: Mr. Frater to Mr. Otten: You had a strong year in 2013.What’s your outlook for 2014?
Mr. Otten: We have the capital sources to exceed our [origination performance] in 2013. Our outlook for 2014 is $10 billion to $13 billion. If the markets shift at all that number could go up or down.
10:51: Mr. Borter to Mr. Otten: How do you set your pricing?
Mr. Otten: Do you really expect me to tell you that? You go first [laughs]. Our pricing is largely liability driven. We tend to like lower LTV and assets in primary markets.
10:45: Mr. Frater to Mr. Otten: Is there no limit to how much life companies can increase their allocations?
You can expect life company allocations to increase. We experienced very strong in this downturn relative to banks and CMBS. Yields are lower than most would like, so that may be a little bit of a regulator on production.
Regulatory-wise, there is no immediate constraint [on life insurance companies] right now.
10:41: Trends to look out for, canaries in the coal mine? What should we be watching for?
Mr. Borter: Things are becoming more aggressive, but we’re still nowhere near where we were in 2006 and 2007. We still feel like there’s a pretty healthy environment out there and there is a very deep market for mezz.
I like to have a little volatility. It filters out some of the people who are hanging on.
10:37: Mr. Frater: From a borrower’s standpoint, is the pitch from lenders still price and proceeds?
Mr. Borter: I would say its price, proceeds and probably speed. The velocity of transactions that [conduit lenders] are bringing to the market now has sped up materially. The kind of market risk we are taking is materially different than it was in 2006 and 2007.
10:33: Mr. Frater to Mr. Borter: There is a big refinancing wave coming in 2015, 2016 and 2017. Can the market absorb this volume and will it have to make changes to adjust?
Mr. Borter: I think capacity is changing day by day. There are now 37 conduit lenders out in the market. In 2010 their were ten. Their is a ton of lender capacity in the market. Partly because 2012 and 2013 were very profitable years if you were in the CMBS business.
10:30: Mr. Frater to Mr. Bassin: How do you imagine banks competing for market share in 2014?
Mr. Bassin: I don’t think banks really set market share terms. Banks will compete very heavily in retaining their best customers. Banks will do what they have to do to continue serving their customers. That results in greater market share.
Banks will be very competitive in trying to refinance deals.
10:28: Mr. Frater to Mr. Bassin: Other trends worth watching in the banking sector?
Mr. Basin: You would think there would be a broad market for multiple banks to syndicate deals. What we see happening is that that isn’t really the case. One factor is the regulatory environment.
10:20: Question to Scott Bassin: Banks of all sizes seem to be increasing their allocation to real estate, do you see any internal or external push back as a result?
Mr. Bassin: Banks don’t allocate the same resources to real estate that life insurance companies do. At PNC we don’t see any internal or external push back at this point.