News

The increased risk weight for banks as it relates to high volatility commercial real estate (HVCRE) went into effect at the beginning of this year. The result is that all acquisition, development and construction (ADC) CRE loans must be reported separately from other CRE loans and are to be assigned a risk weighting of 150% for risk-based capital purposes – above the typical requirement of 100%. This will have a significant impact on banks’ capital ratios and ability to lend at historic pricing levels.

Shlomi Ronen, founder and managing principal at Dekel Capital, was featured in the National Real Estate Investor’s article Get Ready for Liquidity Crunch in Late 2016? on March 11th, 2016.

The article discusses what is causing the choppiness in the CMBS markets, and alternatives where borrowers are heading to refinance pending loan maturities. As well as, how these events could affect the capital markets in the second half of 2016.

The full article can be found here 

In this edition of Capital Insights, we dive into what is causing the choppiness in the CMBS markets, and alternatives where borrowers are heading to refinance pending loan maturities. As well, we consider how these events could affect the capital markets in the second half of 2016.

Choppiness in the CMBS Markets
CMBS issuances year-to-date as of February 12th have been a paltry $6.5 billion, compared to $13.7 billion for the same time period in 2015.

In the first few weeks of 2016, we have seen the stock market retreat due to global economic and geopolitical uncertainty. This uncertainty has promoted a flight to safety that, in turn, has caused treasury yields to drop 28 basis points since the start of the year. While the drop in treasuries is generally a good thing for real estate capital markets, investors and developers, it has had a profound impact on CMBS lenders who have not seen this kind of rate volatility in quite some time.

Regulatory changes and market movements have dominated the news cycle for capital markets this month, so we’ve outlined the top items you need to know for what lies ahead in 2016.

Present: Interest Rate Hike
The U.S. economy entered a new era this week with the Fed’s decision to increase short-term interest rates for the first time in nearly a decade. This move did not come as a surprise to the market.

In 2015, we saw a continued low interest rate environment, the implementation of Basel III regulations and a multitude of new entrants to the market in all areas of the capital stack. Looking ahead at 2016, we will see additional constraints put into place on capital flows. These increased regulatory stipulations and constraints on capital will effect leverage and pricing for commercial real estate and have borrowers seeking non-regulated sources of capital to fill the gap.