New York partner Chris Smith, global head of the firm’s real estate practice, participated in Financier Worldwide’s 2016 Real Estate Annual Review, which canvasses the opinions of leading experts from around the world who advise on global real estate matters. Smith contributed to the US chapter of the report, providing insight into major developments in the region and key factors driving today’s real estate transactions.
According to Smith, “Demand for real estate product continues at a fever pace and it remains a favored asset class. Available capital – whether constituting first lien or mezzanine financing or preferred or subordinate equity and almost regardless of the nature of the investment – remains plentiful. Construction lending has become somewhat scarcer, with institutional lenders limiting construction loans to projects undertaken by well-known sponsors in major markets. Interest and cap rates remain low. CMBS has bounced up and down and when it shows signs of effectively withdrawing from the market loan funds – primarily for mezzanine debt – have been created and stand available to fill the gap albeit at somewhat higher rates. Recently, spreads have become more favorable for CMBS originators than they had been during the first part of 2016. Volatility is expected to return later in 2016, however, as the risk retention rules kick in and B Piece buyers continue to kick out a large number of loans so that CMBS lenders remain somewhat conservative. Life insurance companies are active lenders with a focus on longer term loans. LTV is climbing. Ground up construction and repositioning assets continues apace, but primarily in major markets. Banks are still at it, notwithstanding the ever increasing regulatory oversight and risk capital and monitoring requirements placed on them – although the HVCRE regulations are dampening bank enthusiasm for construction loans.”
Read the balance of Smith's comments - Financier Worldwide's 2016 Real Estate Annual Review