CREFC 2022: Meridian’s Ronnie Levine Talks Lender Appetite for NYC Assets

Levine’s comments have been edited for length and clarity. 

How’s the conference going, so far? 

Typically Sunday night is a big night with a lot of investment banking parties, so obviously — with those being canceled — it’s a little bit of a different atmosphere. It’s more intimate, with small dinners and people getting together for a drink one-on-one. I think that’s changed the dynamic a little bit, but so far, so good. There are a lot of familiar faces here, and I think there are probably more people down here than I was anticipating.

That’s good to hear. Looking ahead to 2022, what’s the biggest market opportunity in your eyes?

We’re hopeful that 2022 is a continuation of 2021, which was a very strong year for Meridian. We hit our high water mark in terms of year-end volumes for our 30th anniversary, and we think those trends will continue into 2022. Obviously, omicron kind of came in a little bit out of left field, and everyone’s still trying to try to figure out what that means for the world and the real estate market, but we’re bullish on the year. We’re watching interest rates. Obviously, they’ve been ticking up, and there are indications that they’re going to continue to rise. So, that’s something we’re keeping our eye on. But we did a significant amount of floating-rate transactions last year, and we anticipate a lot of floating-rate debt in the market this year too. 

Speaking of interest rates, obviously there has been a lot of momentum behind the multifamily sector during the pandemic. How do you think that rising interest rates might impact that momentum?

I think it depends how much they rise. I think if they stay in a reasonable range, I don’t think it’ll have a significant effect, because there’s still a significant appetite for multifamily products on the investor side. With increases in inflation, people are looking to invest in hard assets and so I think that investor appetite for multi is going to continue to be strong. Ultimately, rising interest rates, in theory, should affect the cap rates. But right now, I think people are willing to accept lower returns for multifamily and industrial. So it really just depends how much you see rates go up. I don’t know if there’s a magic inflection point, but I think if you keep the 10-year treasury [rate] below 2 percent, you’re probably in pretty good shape.

What is the general sentiment in CRE around the office sector amid the current omicron wave? 

Omicron is hopefully a temporary setback. I think a lot of firms were planning on getting people back in the offices in January and that’s been pushed back for a lot of firms, but ultimately the long-term effects I don’t think are really going to be any different from omicron than they were for delta or the pandemic in general. It just pushes things out a little bit in terms of getting people back into the offices. I think also you’re seeing the severity of outcomes for omicron seem more mild than the prior delta variant so that’s a positive indication. 

You’ve seen a lot of activity in the Class A office sector with a lot of high-profile leasing so the Class A sector is actually performing very well. I think the question mark is what happens in the Class B buildings and with space utilization. So lenders are definitely cautious when it comes to B products, but with the A product leasing has been strong, rents are high, investor demand is high and lender appetite is there.

How would you say New York City is perceived generally among lenders today?

I think it’s definitely being perceived more positively today than it was at the beginning of the pandemic, so things have definitely gotten better. If you start with the multifamily sector and the for-sale sector, both of those have rebounded significantly since the depths of COVID. Occupancies are back up, rents are back up, concessions are burning out or have burned out in a lot of properties so the fundamentals have actually rebounded quite well. Lenders see the same data and I think they’ve reacted to it. The multifamily sector is very liquid for financing in the New York market.

Hospitality and retail are obviously still challenging, so that’s going to be [financed] on a case-by-case basis as it is with office, as I just mentioned. Lenders are very focused on weighted average term, so the buildings with longer leases are going to be more interesting to a lender than building with a lot of near-term rollover because in the near term, you’re going to have to deal with the uncertainty around rents and utilization and demand. But, if you’ve got a rent roll with a lot of long-dated leases, you can ride out the near term and hopefully the market settles.

Andrew Coen can be reached at acoen@commercialobserver.com.