Market Update - MBA CREF 2018
Five members of the McBride Capital team recently made the trip to San Diego for the 2018 MBA CREF Conference. The conference was fast paced and provided a multitude of valuable experiences. As the newest member of the Real Estate Capital Alliance, we enjoyed meeting with the entire consortium on Sunday, prior to the start of the conference. During the day long meeting we prioritized goals for the coming year and discussed best practices that will allow the group as a whole to enhance the client experience and deliver superior capital markets execution. Technology was a common theme that framed most of the day's conversations.
As luck would have it, McBride Capital holds a position on RECA's technology committee, which is spearheading the implementation of a new lender database that will house more than 2,500 debt and equity sources upon completion. Access to this massive database, coupled with various software platforms like Yardi Matrix and Real Capital Analytics, provides McBride Capital with the capital sources and market knowledge necessary to successfully close highly complex commercial real estate lending transactions.
The remaining two days of the conference were dominated by lender meetings. RECA's Capital Outreach team reserved two dedicated conference rooms adjacent to the main conference, which held a total of 36 meetings in two days.
Here are the key takeaways from those meetings:
Construction lending continues to tighten.
We're feeling the tightening of construction lending here in Portland and it's a trend seen across the nation. Locally, the uptick in vacancy has spread beyond the urban core and we're beginning to see concessions in markets such as Beaverton and Hillsboro. We're also seeing a flattening of rents and in some cases small declines.
Many construction lenders who have been active over the past few years have completely pulled out of downtown Portland, but are still lending in outlying areas such as Gresham. The creation of new relationships between borrowers and lenders is increasingly coming with deposit requirements - in some instances requiring up to 10% of the loan amount to be maintained throughout the term of the loan.
For developers seeking higher leverage, we have lenders who will go as high as 85% LTC. We can also structure a deal with mezz or preferred equity to complete the capital stack and reduce the equity requirement.
Liquid bridge markets.
We met with some of the most prominent nationwide bridge lenders during the CREF conference. The story was nearly the same for all of them: they have a lot of money and they want to place it right now. This is good news for those in the value-add space who are looking for high leverage, low-cost bridge money. These loans are typically non-recourse and can close in less than 30 days.
Spreads are in.
The 10-year treasury is up more than 40 basis points since the beginning of the year. Libor sits at 1.59 today, vs. 0.77 this time last year. You'd expect this would price buyers out of the market, but what we're seeing is a lot of competition and a lot of capital that needs to be placed in 2018. Spreads are down across the board and this compression is particularly noticeable in the bridge space, where average spreads are down more than a point since this time last year.
We're also seeing tight spreads in the CMBS market for all asset types and also from Fannie Mae and Freddie Mac in the multifamily space. We've seen CMBS spreads in the high 150's and recently received a Fannie Mae quote for a 148 spread on a 12-year term. Full Term I/O loans at lower leverage are readily available.
Fannie Mae deal sweeteners.
Fannie Mae just unveiled a couple of huge borrower-friendly changes that are now available for a nominal pricing adjustment.
Rate Locks. Fannie Mae will begin offering up to a 90-day rate lock for their conventional and small loan programs. In a rising interest rate environment that we're currently in, this is a huge advantage for the FNMA platform.
Say goodbye to Yield Maintenance. Fannie Mae will begin offering a step-down prepayment schedule. Previously this was only available within their green program, but will now be offered more broadly. This will help to keep the platform competitive against Life Companies and banks that have more flexible prepays.
$3.7 Billion in Production.
In 2017, the Real Estate Capital Alliance closed more than $3.7 billion in debt and equity transactions. RECA has been a tremendous resource for McBride Capital and has significantly increased our scope of capital sources including Life Companies, Preferred Equity, Mezzanine Debt, and JV Equity Sources.
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Feel free to call or email us with questions about any of these programs.