LOS ANGELES—“At some point in time there will have to be a resetting of rates,” says Curt Johnson, CCIM, vice chairman of First American Title Co. “But when that’s going to be is anybody’s guess. I’ve quit predicting.”
Johnson spoke at length on the current lending environment with GlobeSt.com, and he will do so again here next month, as moderator of the panel discussion “Surveying the Lending Landscape,” part of the CCIM Thrive Conference. Johnson will serve as moderator for a panel consisting of such names as Kyle Jeffers of Starwood Property Trust, Steve Fried of Mesa West Capital, Richard Walter of Promontory Interfinancial Network, Chinwe Onyeagoro of FundWell and Shelley Magoffin of Grandbridge Real Estate Capital.
“There’s an abundance of capital from all lending sources,” says Magoffin, who is SVP at Grandbridge. “That will continue into next year; it’s going to be a very robust market.” And like Johnson, she sees little to nothing happening with interest rates well into 2015.
“Clearly we’re in a highly different environment than 2009,” adds Johnson. “Not only have the standards adjusted but there’s more credit available for more borrowers from more sources: banks, life companies, and alternative lenders, who are lending either in the traditional rate range or, for a lack of better terminology, the harder money range.”
The resurrection of the CMBS market from its over-hyped near-death experience is another major change in the market, one that is providing life companies with something they aren’t accustomed to: competition. “Life companies have had to figure out how to compete,” says Magoffin. “They don’t have the market to themselves anymore.” As a result, she says, they’ve gotten very creative in how they differentiate themselves from the newfound competition, including such tactics as “providing funding before a property is stabilized, offering IO and earnouts, things that they weren’t doing three years ago.”
While on one hand Magoffin praises the growing status of CMBS, she is worried, though not overly, about the growing aggressiveness of the market. “It’s great that there is CMBS money out there, though I think it’s still the loan of last resort. But it’s a little concerning that some of the CMBS money has gotten so aggressive so quickly. It might be a little too much a little too fast, but nowhere what it was in 2006.”
Both Magoffin and Johnson do express concerns about the amount of money chasing deals, “and when I look at values it concerns me,” says Johnson. “I don’t think we’ll know the real nature of values in the marketplace until we do see a more normalized market.”
The problem, he says, is that, it’s difficult to define “normal,” anymore. But until that normalization happens, the result can be what he terms “pretty frothy valuations.”
But both experts admit that these scenarios are for now, loaded with ifs and whats. In the meantime, both express a clear optimism for the near to mid-term of capital activity. Or, as Magoffin concludes, “I am very optimistic about 2015.”