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CRE Finance World, Winter 2013

CRE Finance Roundtable: Outlook for 2013 Nelson Hioe: moments of volatility so you have to look out for that. Other than I’m in the same camp as David on this. I think issuance will be up, that I think continue to look for what the single assets market does and leverage levels will stabilize and be relatively consistent. It and see if there any opportunities on that front as well. would not surprise me if at some point during the year there may be some kind of hiccup. Not to the degree of last year with the Bill O’Connor: European blowup, but something that is disruptive to the steady I agree with what was said about Dodd-Frank. It’s like molasses nature of the capital markets today. It feels like the market is in the winter time the way the regulations come out, and we have somewhat medicated to many of the world’s problems, which have to monitor that carefully to make sure it doesn’t crimp issuance. not exactly decreased in size in the last 6 to 9 months. But barring Otherwise, I think it will be a positive year for new issuance. One of that, it seems like the market is knitting itself together and the the things we are seeing is confusion with respect to valuations, investor base is growing larger and more stable. particularly issuances that are coming out of institutions that aren’t as regulated. In particular, values on middle market assets and Francisco Paez: properties are a concern. We see this in refinancing where law firms I have very similar thoughts. In terms of issuance, we do expect to are working with special servicers and sharing certain values for see significant growth next year. There will continue to be strong resolution. We are seeing almost across the board, as refinancing pressure on spreads, although I would agree there is the potential occurs, values that are markedly higher than what the special servicer for some volatility related to macro events. We will have to see is finding from its third party valuations or appraisals. So I’m a little what the final rule is on Dodd-Frank and if that causes any kind concerned about that going forward as the market heats up. of effect. In terms of underwriting standards, we are concerned that they may continue to deteriorate and the big question is how Clay Sublett: rapidly — hopefully not back to ‘06 and ‘07 levels. We are particularly Certainly, absent of the stress on the economy by the political concerned about the rate of deterioration of underwriting standards environment and the fiscal cliff, assuming we can get past these on the multifamily side. near term issues, I think 2013 looks promising. There continues to be a lot of capital out in the market place and a lot of it capitalizing Bruce Cohen: on the opportunities as being nimble and deploying it carefully. Paradoxically, heading into the downturn, where there was little room Hopefully we will see the migration of capital into, what I’ll call for error, the market had an overwhelming appetite for risk taking. middle America. It certainly comes from the liquidity of the gateway Conversely, today, with rents and the per square foot basis on most markets and the marketability of the assets in those markets. We properties still close to its nadir, the market remains highly fearful are beginning to see some flow of capital away from those, simply and risk averse. This is particularly ironic when government policy because the prices have been bid up and the cap rates bid down is seemingly designed to induce risk taking. The spreads between so aggressively in those markets, that people are starting to look the highest quality assets and anything one to two standard devia- at secondary markets as a stable place to deploy capital, and I tions away is extremely high. It would not be unreasonable to envi- think the financing is following suit. Where we’ve got good clients sion those spreads tightening and those willing to take a bit more making acquisitions, we will follow those good clients with the risk in this environment being highly rewarded in the coming years. financing. In our opinion, the people leading the opportunities are the people who have the cash and the acquisitions that they are Brian Lancaster: going to make in 2013. Francisco, Bruce mentioned the lending opportunities for less Brian P. Lancaster: conventional assets or for assets in tertiary locations. Are there any particular areas where you see opportunities in 2013? Great, thanks a lot. This panel has typically been a harbinger of what to expect at the CREFC January Conference. This year the Francisco Paez: overall tone seems to be very optimistic. Should I be worried? We look forward to seeing you all there. On behalf of the CRE In general, look for buying opportunities in moments of volatility. Finance Council and CRE Finance World, I want to thank everyone Especially if underwriting standards don’t deteriorate dramatically, for their participation and insights today. the middle of the capital stack we feel continues to offer value in A publication of Winter issue 2013 sponsored by CRE Finance World Winter 2013 17


CRE Finance World, Winter 2013
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