CREFW-Winter2016

A publication of

Winter issue 2016 sponsored by

CRE Finance World Winter 2016

platform. Today we are borrowing on a secured and unsecured

basis, including drawing on our long-standing relationship with a

consortium of banks participating in over $1.9 billion in credit lines

and term loans; also on unsecured basis.

Are We Approaching a Cycle Peak?

Lisa Pendergast: What is your opinion on the current state of the

commercial and multifamily real estate markets given today’s

historically low cap rates and low interest rates. How close we

are to a cycle peak and how concerned about that are you?

Victor Coleman:

I am asked this all the time. I look at it a little

differently. When everyone is predicting the same thing, it is

probably not going to happen.

Now I do believe that there will be a differentiator between ‘haves’

and ‘have-nots’ in terms of assets. So good market, quality real

estate, limited risk. Not necessarily good markets, not quality real

estate, risk.

Stephanie Petosa: What role has ample debt and equity capital

played in the current cycle for your business and portfolio?

Michael Lascher:

For us, the debt

markets have been very healthy. We

find there is deep access to capital

through a variety of sources: CMBS,

bank balance sheets, insurance

companies, debt funds.

There is a flight to quality in the

lender community. They want to

know that they have good borrowers

who know how to execute business plans and who are going to

work well with them if things don’t work out as planned. We’ve

been very fortunate; the lending community has been good to us.

And, we’ve been able to find a place to finance our deals, whether

they are in the single-family rental space, multifamily, retail, hotel,

office, or industrial. It’s really just a question of not overwhelming

any one capital source. For example, the CMBS market is very

healthy but there aren’t as many large-loan borrower deals as we

saw in prior cycles. So we are careful about not using the CMBS

market as the sole source of capital for every big deal that we in-

vest in. We try to mix it up and ensure that we’re looking to multiple

types of capital to finance our business.

Victor Coleman:

We’re currently 30% leveraged as a company. We

are pretty much an unsecured borrower across the benchmarks.

As for the availability and role of debt capital:

If you’re a quality borrower, the opportunities are fairly aggressive

out there — from core banks, to CMBS, to unsecured markets.

And, we just did all three. In terms of my concerns and vision as to

where we are in the cycle, I think it’s going to be continually more

challenging for people to access the markets depending on their

track record. As I said, if you perform exceptionally, it’s going to be

easy. But, if you haven’t, I think you’re going to find that the road

is not going to be easy, no matter what happens. The last thing I

would say concerns the equity side of the markets. You have to

match equity with debt at any cycle timeframe, especially when

there’s volatility or perceived volatility at various times in the cycle.

Mark Weiss:

There are 30 something CMBS lenders and new

debt funds cropping up every week. Moreover, commercial banks,

regional and international banks are getting back in the business. I

think it’s the healthiest market I’ve seen since the crash. And, I was

on the wrong side of that market during the crash. As a borrower, it’s

fantastic; I couldn’t ask for anything more. We spend considerable

time thinking about debt maturities and the direction of interest

rates. Two weeks ago, the ten-year Treasury was at 2.0%, now it’s

at 2.3%. Pre-crash, deals were getting done at 5.5%.

I find the CMBS market in particular

to provide easy access to high-

quality, 10-year interest-only debt

for a very stable asset that you plan

to hold on to. We’re looking to doing

that as much possible right now.

At RFR, every one of our assets

is owned individually, whether we

have an equity partner in that deal

or not, but nothing’s crossed. We

can take a holistic view on every

single asset and not have to think about a fund structure and

look at debt maturities that way. I’m also finding the market to be

unbelievably healthy from a floating-rate perspective, particularly

for non-stabilized assets. We did a deal two weeks ago, a $22

million purchase of a three-story building in SoHo that’s going to

be empty in six months and we borrowed $18 million against that

at sub-LIBOR500. That rate reflects our sound track record and

expertise in New York, which makes it relatively easy to raise debt

capital. I don’t think everybody would have gotten that loan.

Farzana Mitchell:

With what we are faced with on the retail side,

I concur with many of you regarding the benefits of being a well-

known sponsor with experience in the industry. When borrowing on

a secured basis in the CMBS market, a quality asset is desirable.

Same for the life companies; if they like an asset then the pricing

is aggressive. A high-quality asset/sponsor garners tremendous

A Roundtable: Straight Talk from Industry Leading Borrowers

“Quite frankly, we can look at this market as

perhaps getting a bit frothy. However, as

soon as you see weakness, there’s enough

capital sitting on the sidelines and access

to debt for qualified individuals and entities

that investors will step in pretty quickly and

buy Class-A assets.”