State of the CRE Debt Markets
For all the borrowers, lenders, and brokers out there, how have the debt markets looked throughout COVID? I'm an associate focusing on Agency/CMBS and some balance sheet lending and was curious how competitive we have been. On the agency front, we've been locking a number of deals sub 3.00% and had one as low as 2.50% all in (that one was green). Are people seeing that from other brokers/lenders?
Also curious what the CMBS market has looked like. We're starting to open back up and our quoted rates range from the low - high 3.00%, but didn't know if that is competitive with what other desks are quoting since agency rates are so low right now.
Also wanted to know how aggressive balance sheet lenders have been. I assume not very?
Thanks for the replies all.
Had to switch from CMBS to Freddie when COVID hit my firm.
We've seen CMBS deals come in and we are extremely selective (of course), but I think we have soft-quoted a few at high 3's, maybe even low 4's but have not issued any term sheets yet. Tbh, I don't think my boss knows where the market even is.
On the Freddie side (this is strictly SBL for me), we are continuing to get deals in and close. Most of them are under app at mid to low 3's (10 year fixed and hybrid), yet it depends on location. For example, we're about to close on an apartment in Brooklyn, 10-year fixed at 3.57%. Still can get up to 80% LTV in top markets with solid pricing, so that has helped us continue to bring in fees.
Debt fund/direct lender
We have a couple funds, as well as a Freddie SBL license
Does it matter?
Mid-sized sponsor/operator here. Most of our lenders have really tightened. The difference in attitude from the AM on the debt side is striking. Whereas before there was generally some leeway approving leases, funding, etc., now everything is being enforced to the letter of the loan agreement.
On the origination side, regional banks are pretty active but they generally require some recourse and substantial reserves. There is less activity on the higher end of the spectrum, as I think there is a lot uncertainty on the syndication side right now. On office deals, we are seeing L+250/300 with a 1.0% LIBOR floor.
A full answer to your questions would be very long so I will drop a few highlights. Obviously Agency only deals with multifamily while CMBS deals with all property types. Rates and terms such as leverage really depend on timing in the market. In our currently low cap rate environment, the constraint for CMBS seems to be hinging on Debt Yield and DSCR for Agency. Lately we have been seeing higher leverage and much lower rates for Agency than CMBS with Agency rates below 3% and CMBS closer to the mid 3s. Typically it is easier to obtain IO from CMBS than Agency although during the past couple of years Agency has been flexible on IO and this has become more moot. CMBS typically prices over swaps while Agency prices over T-bills. There is much more flexibility in Agency product such as floating rate money and not having to pay a ~50bp premium to do a 5 year deal. Prepayment is Defeasance vs. Yield Maintenance which typically function and amount to be about the same. A large advantage of Agency is early rate lock which you really can't do in CMBS without purchasing a hedge. There is better servicing in Agency since those loans are typically serviced by the originator's company rather than a third party and there is more flexibility in terms of remedies such as supplementals etc.
At the moment, unless there is a special circumstance that prevents a multi deal from going Agency, I wouldn't even consider CMBS.
I cannot possibly understand how one would got the CMBS route in the past five years but that is neither here nor there.
The lending environment has been extremely challenging and at the forefront of discussions on new opportunities
Banks - reluctant to go long without recourse. Mostly seeking to do 2-3 bridge type deals given the level of uncertainty. I have been told that barring any unique circumstances, new sponsors are a non-starter. It is about relationship lending at the moment. In terms of product, multi-family and industrial are in the strike zone. Generally speaking, this is not a time when guys are out trying to extend loans, the banks are on defense. Rates are L + 250 - 400 depending on product. with a 1% libor floor that is seemingly non-negotiable. interesting someone on the thread mentioned it is. I'll give it a whirl.
Lifeco: similar to above, industrial and MF are the in the strike zone. Larger portfolios are the preference to spread the risk and not concentrate in any particular MSA. Surprisingly competitive in the construction to perm space on spec development.