PHOENIX, AZ – Tower Capital, an independent structured finance firm, is predicting the commercial real estate capital markets will remain robust in the New Year with funds competing for the better projects. “There’s a lot of money out there looking to be placed, both debt and equity” says Adam Finkel, Principal, Tower Capital.
Underwriting is still stringent and lenders make loans based on strong sponsors, the location of the asset and “where they are in the cycle,” Finkel tells GlobeSt.com. “Overall, supply and demand is balanced with maybe some oversupply in the marketplace. Lenders, however, have helped keep it balanced even with industry challenges such as increases in construction costs and developers having a hard time finding qualified workers.”
Meanwhile, there is still a lot of demand and a lot of “transactional velocity,” says Finkel. “We advise our clients to get more term on their loan and to make sure they have time to execute their business plan and allow it to season before selling or refinancing.”
A lot of borrowers are preferring fixed rates and shorter term floater rate loans. Clients are voluntarily buying interest rate caps to ensure rates aren’t going up to a drastic amount. “We also see people looking for longer term fixed rates since they are expecting rates to continue to go up,” says Finkel.
As there is so much money out there looking to be placed and lenders are increasingly stringent, some borrowers are looking for alternative financing with certain lenders shying away from retail and hospitality having a smaller lending pool.
“Banks, pension funds, insurance companies online lenders and private investors are typically the main sources entrepreneurs tends to look to for commercial real estate loans,” says Finkel. “ However, different lenders have different appetites for risks. Factors include the actual real estate, solid sponsors and of course, the business plan.”
“Overall, barring an international political event, 2019 will be a healthy capital market environment with plenty of opportunities,” says Finkel. “The market is trending upward and we are looking forward to it.”