Industry Spotlight: Q&A with CIT Group’s Matt Galligan

CIT is a leading national bank focused on empowering businesses and personal savers with the financial agility to navigate their goals. With deep market expertise, underwriting experience and industry relationships, CIT’s Real Estate Finance division originates senior secured transactions to finance single properties, property portfolios and loan portfolios. Commercial Observer’s Industry Insight’s team sat down with Matt Galligan, President of Real Estate Finance at CIT Group, to discuss the state of lending.

Commercial Observer Industry Insights: How is construction lending different today compared to previous cycles?

Matt Galligan: Construction lending today is much different than what it has been in past cycles. The financial community and developers are taking a more measured approach to the market dynamics. Developers have been more attentive to cost increases relative to sales prices. Although leverage is relatively high, mezzanine structures provide a passive tranche of the capital structure. As a result, they are lender friendly compared to B notes, which had been used previously and led to conflicts in the capital structures.

Most economists say an economic downtown is a matter of if, not when. How are you preparing?

Galligan: CIT has prepared by lending to best-in-class sponsors with the best thought-out business plan in gateway cities. We maintain a strong and disciplined risk management framework. Leverage and loan-to-cost need to be 60 percent to 70 percent calibrated, based upon the risk of the asset class and plan. We’re very selective in our originations. We are “asset pickers” with core expertise in assessing collateral valuations for financing purposes. We use our deep underwriting experience to ensure we are financing the right customers and the right assets that will succeed long term.

As Q1 comes to a close, what are the top three trends you’re keeping your eye on?

Galligan: First, I am watching the relationship between the two-year Treasury and the 10-year Treasury. Should this curve invert, it would represent a foreboding sign of a recession. Second, in NYC I am watching the number of apartments selling for $3,000 per square foot and more. This is where the inventory bottleneck is for residential. I am also watching the headlines for signs of instability and keep a close eye on jobs and interest rates because they ultimately drive real estate values. Finally, the spread of 10-year Treasuries plus 3 percent is the normalized cap rate value. Today that relationship has a 150bp spread, which may foreshadow an increase in interest rates that could hamper real estate values.

Join Matt Galligan and other top lenders at the 4th Annual Financing CRE Forum on April 9, 2019. Click here for more information.