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NEWPORT BEACH, CA-A recovering CMBS market, increased confidence in real estate and a wealth of CMBS notes coming due are expected to encourage accelerated transaction volume over the next few years. According to Guy Johnson, chairman and CEO of Johnson Capital, who was the keynote speaker during Sperry Commercial's recent broker exchange, these factors, combined with low interest rates, bode well for increased activity in the industry.

“Over the past 20 years, the long-term trend in interest rates for debt has been progressively lower, starting from around 7% to 8% in 1993 to around 1% to 2% today,” said Johnson. “As a result, property owners have benefited tremendously over the past 20 years because the trend of lower and lower cost of borrowing money has effectively compressed cap rates and increased prices on real estate.”

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The recovery of the CMBS market since its bottom in 2008 is also a good sign, since it has been increasing liquidity in the real estate market overall, Johnson added. And, “brokers should see increased motivation and transactions with the coming surge of CMBS notes coming due within the next few years. The increased confidence in the real estate market and the additional pressure of more notes coming due motivate note and property holders to dispose of their assets.”

Also discussed at the exchange was the tremendous surge in valuation in the past 18 months. John-Aaron Lenhert, financial advisor at Morgan Stanley, said a lot of equity can be leveraged through the firm's unique product called the Private Loan Account. “The PLA allows investors to leverage their holdings in the stock market to have a private line of credit which they can use to buy real estate.” The product has the added tax benefit of not having a capital-gains tax event as compared to when an investor liquidates his holdings. The investor can basically keep their stock-and-bond portfolio intact and still be able to invest in commercial real estate and later get fixed financing on the line of credit.

Another recommendation was combining the services of a bridge lender with a national bank to benefit the borrower. Stephan Kachani, partner with bridge lender Lone Oak Fund LLC, and Melanie Smith, SVP of City National Bank, related how they've provided short-term, privately financed capital for B- and C-rated assets for a quick transaction with Lone Oak and then converted that debt into conventional long-term financing with City National. Smith said that this can be done for both investor- and owner-occupied properties and that she is seeing a lot more transactions with the equity coming from business owners.