What is your opinion where we are in the cycle and how is your firm preparing for the next 12-18 months?

I'm curious what everyone here is thinking about the state of the market. On the commercial lending side, we are currently experiencing a significant drop in spreads on new debt deals and the intense pressure coming from life insurance co's. It seems a lot of the project loans i'm seeing across my desk are more non-recourse bridge which is much tougher to underwrite for us. We recognize we're in the 9th or 10th inning and are trying to focus on writing bigger checks to our bigger and better-credit clients that we have strong relationships with.

Curious what everyone else thinks and how their debt/equity/brokerage shop is preparing going forward. Are you loosening your criteria to do more deals? Setting cash aside?

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Comments (6)

May 3, 2018

I don't think we are in a horrible spot right now. Still think 7th ish inning. Construction costs are starting to constrict development. Other than being tougher with our GCs we aren't changing a thing.

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Best Response
May 3, 2018

nobody has any clue where we are in the cycle, just like a year ago. Asset valuations are still frothy and assets continue to trade at compressed cap rates, aided by tightening spreads and the banks behind them that are still lending aggressively on a macro level. But, a couple of interesting things have changed since then which are having an impact on local markets depending on where you are...first, major reduction in Chinese capital outflows due to government restriction that are reducing investment sales volumes in certain gateway markets like LA and NYC. That creates opportunities for American buyers that were left scratching their heads over the past couple of years when they were repeatedly outbid on signature institutional assets by Chinese investors willing to pay absurd 2 caps. Second, the unknown impact of trade tariffs is starting to spook contractors and subs. In the past few weeks, I've seen notices from dozens of subs (not just steel guys, MEP, timber, etc.) claiming their pricing is invalidated and subject to anywhere from 6-15% increases due to tariffs. That could obviously have a huge impact on future development.

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May 3, 2018

For what it's worth:
https://therealdeal.com/chicago/2018/05/01/sam-zel...
Emphasis on Zell's quotes at the bottom of the article. Must be nice to sit on a pile of cash like that and wait for the opportune moment.

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May 3, 2018

monkey shit? really? to each their own...

https://media.giphy.com/media/12OqFaUF0nD560/giphy...

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May 3, 2018

Despite the drop today, with the 10-yr treasury in general flirting with 3%, it is amazing to see how we got lucky with some of the deals that we executed only a few months ago. If we acquired them today, we would have negative leverage - CoC less than the cap rate.

May 5, 2018
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