IRVING, TX-During the heyday of the Great Recession and its aftermath, available debt for student housing (or any other type of commercial real estate, for that matter) was limited. A few years after the financial meltdown, however, more lenders have entered the field and are offering more product, from permanent fixed-rate loans, to bridge and mezzanine financing, to flexible-rate mortgages.
As such, one issue tackled in various panels at the May 14 RealShare Student Housing conference involved flexible versus fixed-rate debt. Though no clear winner emerged from these discussions, it did make for some lively discussion throughout the day.
Experts speaking on the “Meet the Money” panel were split about fixed versus flexible, with Kayne Anderson director Craig Zogby and Blue Vista Capital Management senior vice president Walt Templin disagreeing about which was best. Though Zogby pointed out that an interest rate lock guaranteed that low rates would remain fixed, Templin pointed out that floating rate flexibility is a better tool when it comes to taking advantage of opportunistic deals. Furthermore, “the ability to obtain supplemental financing is restricted with a locked-in rate,” Templin noted.
But Zogby wasn’t having any of it. “If you can lock in that rate,” he said, “it’s more advantageous, and a present, to the buyer.”
The discussion spilled over into the “Opportunities in Acquisitions and Investment” panel, which took place later in the day. Much like Templin, Landmark Properties CEO Wes Rogers and American Campus Communities‘ executive vice president of acquisitions William Talbot liked the idea of flexibility when it comes to financing.
But not Isaac Sitt, co-founder and co-CEO of Vesper Holdings. “Our theory is ‘set it and forget it,’” he said. “We want to lock in the rate for as long as possible – we’re not looking to add risk.”
Zogby’s Kayne Anderson colleague David Selznick agreed with Sitt. “We lock long to take risk from the project,” explained Selznick, who is CIO at the company. From Selznick’s perspective, it doesn’t make selling an asset any more difficult to have long-term, fixed-rate debt attached to it. “Either the buyer will assume the debt and re-up on the supplemental or prepay it off,” he added. “But we want to protect that asset long-term.”
The RealShare Conference Series is part of ALM’s Real Estate Media Group, which also publishes GlobeSt.com and Real Estate Forum.