Dekel Capital was in attendance at the Western States CREF Conference in Las Vegas earlier this month, where we met with capital sources across the lending spectrum to get updated insights on lending programs and trends in today’s capital markets.
The current sentiment is that lenders have recovered from the general market turbulence that reverberated through the industry in the first quarter of the year. Both bridge lenders and fixed rate lenders are now providing fluid supply of debt to meet borrowers’ needs through the end of 2016, albeit at tighter leverage levels than 12 months prior and with a greater focus on in-place cash flow or pre-leasing.
The evolving gap in the market for bank lender construction financing (as bank lenders have met allocation levels and are reserving capacity for existing clients) has allowed private debt funds to partially fill this void and become more active players in the space. These traditionally “bridge” lenders aim to differentiate themselves by providing flexible construction loan structures and providing asset management and loan servicing in-house – offering some respite for borrowers who are more accustomed to bank pricing for construction financing. Additionally, given the pullback in leverage by bank construction lenders, construction mezzanine debt and preferred equity investments are being offered by private funds with leverage up to 85% LTC achievable for commercial real estate, and potentially higher for multifamily projects. In some cases, lenders are offering a combined senior + mezz “stretch senior” structure that offers a single capital source for borrowers with larger, heavy value-add and construction projects (20M+).
CMBS lenders have seen recent deals priced wider in the face of the regulatory changes pending. Recent AAA securitizations have priced from 102-108 and BBBs have ranged from 525-625. Given the trending among borrowers to lock in rates on longer-term financing, new fixed rate debt mezzanine players are also entering the market, offering longer-term products to complement CMBS (as well as life company and bank loans).
We highlight here a few loan programs that stood out in our discussions with capital sources at the conference:
Mezz/Pref Equity Construction Financing:
If you have a pending transaction in need of financing, contact a member of the Dekel Capital executive team to discuss how we can assist in getting your project over this hurdle and finding the best capital source for your needs.