SAN DIEGO—CRE lenders for the San Diego market have a general concern over the still-aggressive valuation afforded to existing buildings, with cap rates and price per pound still setting records in many segments, Barry Slatt Mortgage's commercial mortgage banker Cody Charfauros tells GlobeSt.com.

The firm recently hired Thomas Cohen to its San Diego office as SVP. Cohen brings more than 20 years of experience in the mortgage-banking industry, most recently as founding partner of JC CAP LLC. We spoke with Cohen about his new role with the firm and with both Cohen and Charfauros about how lenders are viewing the San Diego market.

GlobeSt.com: Thomas, what are your goals in your new role with Barry Slatt Mortgage?

Cohen: We are excited to expand the platform in San Diego, both in terms of the number of loans originated and also with respect to the number of originators we have working in this market. We've had a local presence in this market for more than a year and have seen excellent production during that time. I've really come to recognize and respect the San Diego market's roots as a “savings-and-loan” town and feel there is a clear role for local mortgage bankers here. Specifically, I liken our services to that of a community banker in that we take pride in forging a deep, personal relationship with our client and then structuring and delivering customized financing options that meet our clients' specific needs.

GlobeSt.com: How are lenders viewing San Diego as a market for financing?

Charfauros: San Diego is generally viewed as an area of growth for many of our lenders since most of their portfolios are underweighted here relative to the overall size of the market. Although it may not achieve the headline attention of larger markets such as Los Angeles or San Francisco, San Diego's market fundamentals appear to be sound, particularly in multifamily and industrial investments. Biotech is another area that we expect should see continued growth due to the intellectual property and talent base connected to UC San Diego. On balance, our lenders consider the area's real estate investors to be highly sophisticated, entrepreneurial and committed to long-term relationship building, all attitudes that motivate lenders to make loans.

GlobeSt.com: What are lenders' concerns about this market as compared to other Southern California markets?

Charfauros: A general concern is over the still-aggressive valuation afforded to existing buildings, with cap rates and price per pound still setting records in many segments. San Diego as a market was a bit slower than others to plummet at the start of the 2008 recession, and it was also a bit slower to recover. It's hard to say what measure is the area's canary in the coal mine, but “Help Wanted” is a local measure we track along with the USD Burnham-Moores index. Asset-wise, one particular area to watch is the rate of absorption for the new spec CBD and suburban-office/flex space announced and delivering in the next 18 months or so. In previous cycles, Downtown and other areas such as Mission Valley have struggled to maintain steady, “employment-center” status as location preferences shifted to UTC and points north. Finally, changes in immigration policy and San Diego's continued reliance on defense spending somewhat exposes the region to swings in the political climate, though recent announcements from the various branches of the military and military spending in general bode well for the near future.

GlobeSt.com: What else should our readers know about CRE financing in general for the rest of 2017?

Cohen: The real estate capital markets will continue to achieve unprecedented liquidity even as borrowing begins to tighten among record cap rates and rising interest rates through the second half of 2017. The conduit/CMBS market will continue to experience a reduction in new originations (at least until the “wall of maturities” is largely handled and absorbed), with life companies and banks making up the shortfall without issue. If Mr. Trump is successful in alleviating some pressures off banks in revising Dodd-Frank legislation, we could see a resurgence in smaller-bank lending and therefore greater competition for quality loans.

GlobeSt.com: Thomas, what are your goals in your new role with Barry Slatt Mortgage?

GlobeSt.com: How are lenders viewing San Diego as a market for financing?

GlobeSt.com: What are lenders' concerns about this market as compared to other Southern California markets?

GlobeSt.com: What else should our readers know about CRE financing in general for the rest of 2017?

Instant Insights /

Lender Views on the San Diego Market

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