San Francisco

SAN FRANCISCO-Deal flow has picked up considerably in the second half of this year, with buyers and lenders favoring the best assets in the best submarkets, according to panelists at a ULI event where more than 50 members of the organization’s San Francisco Council gathered at the law firm of Holme Roberts & Owen to assess the pace of thawing in the Bay Area real estate markets. The panelists discussed details of recent deals during a discussion titled, “Dissecting a Deal: What’s Really Working in Commercial Real Estate Finance?”

The session was led by moderator Steve Duffy, managing director at Moss Adams Capital. Panelists included Ronnie Gul, vice president at Mesa West Capital; Dennis Williams, managing director at Northmarq Capital; Charlie McGann, bay area vice president for real estate for Union Bank and Ramsey Daya, a principal at Regency Capital Partners.

Panelists McGann, Gul, Daya, Williams, Duffy

“The financing market has changed significantly in the past few months and deals are getting done that simply weren’t possible a year ago,” said Duffy. This marked departure from the first half of 2010 is evidenced by Union Bank’s renewed activity, according to McGann. His bank has been “hungry to put assets on its books over the past six months,” he said, and detailed a recently financed single-family infill development in the Mountain View/Los Altos community, a sector virtually dormant since 2008.

Williams echoed the statement saying, “Lenders are getting back to business.” He listed examples of interest rate compression in the mortgage markets with fixed rates under 5% and loan-to-value ratios of 65%. Information is changing rapidly and deal quotes require constant benchmarking over ever-shortening periods, he added.

Even the construction lending market is coming back. Daya illustrated a deal to finance a $55 million multifamily construction loan in the Mission Bay/Dogpatch district of San Francisco that came in under 4.5% on estimated construction costs of $69 million. He added that the bank received Community Reinvestment Act and historic tax credits in the deal.

Gul provided evidence of movement in the office sector as well. As reported by GlobeSt.com, his firm recently bought the $130 million mortgage on Moffett Towers, a 950,000-square-foot multi-tower class A office property in Mountain View that was constructed in 2008. The property was only 13% occupied, yet it sits along the 101 Freeway within five minutes of Google’s campus. Gul said that his firm would rather lend on a vacant high-quality building in a prime market than an occupied building in a secondary market with impending tenant rollover.

While some of these examples might point to a major shift in lender risk appetites, all of the panelists shared the sentiment that their activities were in high-quality markets with high barriers to entry. While recourse financing is still present at Union Bank, it is lending to top quality sponsors with proven liquidity. Regency Capital also sees capital returning to high quality borrowers in the best locations. As illustrating still-distressed industry sectors, Williams said, “We are still a ways from lending on Sacramento office buildings or other secondary markets.”