Graziano: “With restrictions on banks and CMBS pricing, debt funds, mortgage REITs and online lenders have begun to fill in the gap and have become significant players in the lending world.”

IRVINE, CA—Investors who buy properties at auctions—which have hard close dates—value certainty of close above even attractive interest rates and high leverage, Tom Graziano, senior director, finance and capital markets at Ten-X Commercial, tells Given all of the factors that could influence financing decisions for commercial real estate investors, we spoke with Graziano and Joseph Cuomo, SVP and director of business development at the firm, about the drivers for today’s market, the impact of increased transparency on the industry and other financing trends. What factors today are driving CRE financing?

Graziano: Investors who are looking to acquire new properties or refinance existing properties in today’s market are pursuing loans that have attractive interest rates, high leverage (loan-to-value) and a significant degree of certainty. While each of these is important to all borrowers, for investors who buy properties at auctions—which have hard close dates—certainty of close is essential. Borrowers need to know that when the close date arrives, he or she will have secured financing to close the acquisition.

Cuomo: “Increased transparency and enhanced data access have positive ramifications across the industry.” How is increased transparency in the CRE industry impacting financing?

Cuomo: The influx of tech-based tools has increased not only the amount of data CRE professionals have access to, but also data quality. As this trend continues, the level of transparency for all market participants will increase in kind.

Increased transparency and enhanced data access have positive ramifications across the industry. Any player looking to analyze a property—prospective lenders, buyers, lessees, etc.—is able to access information more efficiently than ever before, which enables them to underwrite the property more quickly.

For example, on the Ten-X Commercial platform, our pre-approved buyers are immediately given a wide range of information on available properties on our marketplace. Even prior to submitting a bid, a buyer can review rent rolls, property-condition reports, operating statements and other essential documents, enabling them to make an informed decision about the property’s value in a short timeframe.

This also helps the financing side of the equation. We recently partnered with Money360, a technology-enabled direct lender, which pre-underwrites deals before they are placed on the Ten-X platform. Money360 also has access to the same property information that buyers have, such as rent rolls, etc., enabling them to offer pre-approved loan terms to investors during the early stages of the process. This new financing solution helps Ten-X increase transactional velocity and certainty of close. Can you tell us more about the partnership with Money360?

Cuomo: Prior to going live on the platform, Ten-X and Money360 review qualified properties—essentially properties expected to sell for at least $2 million, except raw land—to provide pre-underwritten loan offerings, which will be listed on the Ten-X property detail page. After the property trades, Money360 will work with buyers to underwrite, process and close the loans to facilitate the transaction.

Money360’s ability to offer a full suite of services, including bridge and permanent loans, made it a perfect partner for our business. We work extremely closely with Money360, and it is willing to go above and beyond to close deals for our clients. For example, one Ten-X buyer recently had to close on a New York property within just nine days. Money360 worked extremely quickly to underwrite, process and close the loan in that timeframe—an amazing feat for a process that would normally take three to four weeks.

We’re really excited about our partnership with Money360 because it will expand the investor pool by giving our buyers assurance they will be able to procure financing to fill the capital stack. At the same time, it will give sellers and their brokers increased confidence that once terms are agreed upon, buyers will be able close the deal. Any other prominent financing trends worth noting? 

Graziano: The Dodd-Frank regulations implemented in the wake of the financial crisis tagged banks with a number of restrictions to reduce risks, and some of these have had a negative impact on the market. For example, the Volcker Rule restricts banks’ proprietary trading groups by not allowing them to take on their own risk, which has impacted liquidity in the CMBS space. With reduced liquidity comes increased pricing, so borrowers across the country have had to deal with less-attractive CMBS loan terms.

In response to this market, we’ve seen the growth of non-bank lenders. With restrictions on banks and CMBS pricing, debt funds, mortgage REITs and online lenders have begun to fill in the gap and have become significant players in the lending world. At the same time, several traditional equity investors have also begun offering debt financing.

One other trend worth noting is the uptick in collateralized loan obligations, which are bundled packages of floating-rate bridge loans. CLOs are similar to CMBS, except they tend to consist of short-term loans that have variable rates. As the CLO market has expanded in recent years, it’s provided a significant new source of funding for bridge lenders. CLOs are most prevalent with multifamily loans, which are less volatile than other CRE loans, and several major lenders—including Greystone and Hunt Mortgage Group—have recently begun breaking into this space.