Heartland Real Estate Business

FEB 2018

Heartland Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Midwest.

Issue link: https://heartlandrealestatebusiness.epubxp.com/i/935979

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Page 24 of 32

24 • February 2018 • Heartland Real Estate Business www.REBusinessOnline.com THREE REASONS FOR MORTGAGE BANKERS' BRIGHT OUTLOOK BANKERS from page 1 Having perceived this economic expansion to be in the late innings, lenders last year reduced leverage ra- tios by a few percentage points for ac- quisition and refinance loans, among other tightening actions. Combined with regulatory changes that had already slowed bank lending, the move by lenders fueled deals with a growing number of private debt funds, especially for construction fi- nancing. (See sidebar.) But signs of accelerating growth suggest that the expansion isn't near an end, mortgage bankers contend, pointing out that Australia's current growth stretch is nearing 27 years. "I don't know what the new norm is, but as far as hit- ting the end of the cycle, maybe it gets pushed out. Maybe it gets pushed out two or three years," says Bruce Francis, vice chairman of CBRE Capital Mar- kets, which reported mortgage origina- tion and servicing fees of $412 million through three quarters last year, a year-over-year in- crease of $19 million. Balanced markets Robust CMBS activity is fostering the bright outlook, especially after a wave of CMBS maturities that were supposed to overwhelm the system never materialized. According to Trepp, private-label CMBS issuance in 2017 totaled nearly $90.5 billion, a year-over-year increase of 28.1 per- cent, while the delinquency rate fell to a 15-month low of about 4.9 percent. In October, the Mortgage Bankers Association (MBA) estimated that commercial and multifamily mort- gage originations for all of 2017, including private label CMBS issu- ances, would reach $515 billion, up 5 percent over 2016. (The final totals for the year hadn't been released as of press time.) At the end of the third quarter of 2017, life insurance companies and the government-sponsored enterprises Fannie Mae and Freddie Mac reported 60-day delinquency rates of 0.03 per- cent or less, according to MBA. Banks reported 90-day delinquency rates of 0.52 percent, the lowest level in the 24-year history of observation, reports the organization. "Mortgage bank- ers, lenders and borrowers really learned from the last downturn that pru- dent underwriting makes all the differ- ence in the world," says Sue Blumberg, a managing direc- tor at Minneapolis- based NorthMarq Capital who oper- ates out of the Chi- cago office. "Nobody I talk to is hav- ing issues with their loan portfolios." Aside from e-commerce-fueled jitters in the retail property sector, fundamentals are generally healthy across all commercial real estate seg- ments, intermediaries say. "It feels to us like things are in equi- librium at both the property level and at the capital level," adds M. Lance Patterson, principal of Atlanta- based Patterson Real Estate Advisory Group, which in 2018 looks to best last year's record origination volume. "We see no stupid money." Bumps in the road Of course, the rosy view extends only so far. Intermediaries point to a handful of potential market disrup- George Smith Partners last summer arranged $21.6 million in construction financing for a 35-unit condominium project in Los Ange- les that will include retail space. An offshore investor is providing the two-year loan, which features a loan-to-cost ratio of 80 percent and an interest rate of 10 percent. Bruce Francis CBRE Sue Blumberg NorthMarq Capital

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