Money Talks: What Lenders Told MBA CREF

Marc Ritchie

This year’s Mortgage Bankers Association Commercial Real Estate Finance Annual Conference offered an optimistic outlook for the year ahead for commercial real estate finance. This sentiment was punctuated by massive commercial mortgage production totals in 2021. For borrowers, it should be noted that even with some slight upward swings, rates remain at historic lows.

For most commercial space lenders, the refrain was that they would have done more business if they could last year, and that expectation sets their 2022 allocation targets at the start of the year. . This bodes well for an active year in commercial real estate finance, which is really what the conference is about – the year ahead. With that in mind, here are some of the key takeaways from the conference to focus on as we chart a course in commercial real estate finance for 2022.

Variety of debt capital solutions

In a career that spans decades, I have never seen such a wide range of commercial mortgage options available to developers and investors. Today’s market is a veritable supermarket of choice. Beyond traditional banks, credit unions, CMBS and life insurance companies, new capital seeking yield and the inflation hedges of real estate investments have emerged as debt funds specializing in competition with traditional capital providers for commercial real estate loans. This bodes well for tailoring debt to targeted investment outcomes, whether short-term strategies or legacy holding strategies. Options create competition that will benefit borrowers in 2022.

Floating Rate Capital Tsunami

A healthy appetite in the institutional world for commercial mortgage debt reflects the discipline and health of today’s asset class. These institutions see inflation and an opportunity for short-term returns in adjustable short-term debt. With rates remaining at historically low levels, these variable rate loans will serve the appetite of sponsors looking for higher leveraged debt or for value-added investments. Lenders remain confident that commercial real estate performance and operating income growth will continue to match as-underwritten loan performance and offer attractive adjustable rate products for confidential sponsors in a variety of structures.

SOFR replaces LIBOR

At least for commercial real estate, the secured overnight rate has become the new benchmark for calculating variable rate loans in the United States. LIBOR is slated to be phased out completely, a process that is expected to be complete by Q2 2023. has rolled out of Europe, Japan and other mature markets, US markets view SOFR as the de facto standard, which obliges to pass to its generalized use. Most commercial real estate lenders now quote SOFR, with a decrease in the number of institutions still quoting LIBOR.

Alternatives to the CMBS Conduit Emerging

Banks, loan funds, credit unions and life insurance companies have introduced products for sources of long-term debt capital to be deployed at historically CMBS leverage points and spreads. This mirrors my previous point, competition between lending sources creating viable options for legacy finance products

Fixed rate loan capital

Stability and performance across assets preferred by fixed rate lenders, even in the face of post-COVID disruptions, has performed well and continues to perform very well. Most loan program needs are greater in 2022, and their overall asset base is holding steady, even if i run hard to stay in place let alone grow. The liquidation of these loans via depreciation and real estate sales continues to motivate fixed rate lenders to identify and fund quality loans, i.e. with qualified sponsorship and the right leverage, wait up to the competition.

All assets are not equal

Expect the trend for lenders to compete aggressively for loans related to multi-family and industrial properties to continue unabated in 2022. The subsequent tight spreads and yield on debt in these asset classes have generated renewed interest in retail, and we are seeing more and more sources of debt finance well-located properties for renovations and repositioning. Desktop product has also come back to the table for most of our lenders when there is a story to tell and a sponsor with an articulated business plan to write the next chapter. It should be noted that self storage as an asset class is maturing into a “staple food group” for most lenders who now view this property class as an attractive target due to its historical performance. and continued demand.

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