Assessing New York’s “Brutal” CRE Lending Market

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Mark Halloran is a Director at GRS | Corteq
(732) 450-8960
mhalloran@grs-global.com

There is arguably no market in the country like New York City when it comes to commercial real estate values, lending competition and overall grandeur. Competition in the country’s largest city is especially strong, given the rebound in CRE transaction activity and the number of players that want to put capital into the fray. Mark Halloran, business developer at GRS | Corteq, who does a majority of his work in the Northeast, was recently at Bisnow’s NYC Capital Markets Summit, studying panels speaking about the state of the industry. We spoke with him on the show floor.

The moderator on the first panel characterized it as a “brutal market” in New York City. Do you see it that way?

What makes it brutal is that there is so much capital out there, from opportunity funds to traditional banks to CMBS shops. We had some of the larger institutional players on the stage today. The one big question is whether there is really enough deal flow out there for there to drive transactions for us to all stay busy.

Are you seeing clients go more to value-added assets as a result?

We’re seeing a lot business being taken up by banks, especially in the New York City market. I talked to some agency lenders at the conference who said local banks were quoting inside of them on rates and were able to do deals that were “pre-stabilized” or value add projects that might not be an opportunity for Fannie Mae or Freddie Mac. They were lamenting the fact that those banks were taking their lunch on some of those deals.

What are you seeing as far as the development picture is concerned in the New York City area?

Clearly there is a lot of new construction of various property types. In the outer boroughs there is a lot of multifamily activity. GRS Group sees a lot of opportunistic buyers coming in to get funding to reposition the assets. A lot of those are in The Bronx, Brooklyn and Queens, where they’re seeing properties that haven’t been managed proactively. They’re coming in to get to the deal at a discount and using the funding to upgrade the quality of that asset because rental rates continue to rise, and they’re making a play on that basis.

Does there seem to be much concern about the possible increase in interest rates?

It’s not a huge deal if interest rates increase, it’s really if they spike up or if there is certain international news or crisis that spooks people from not doing deals. Interest rates have to move up, and if the Feb continues to pull back on quantitative easing as they have been doing, rates are likely to move up. They have been at historic lows since the market crashed, so there’s pretty inexpensive money all around right now.

People on the panels didn’t seem so hot on the CMBS market. What are your thoughts on that?

It came back so strong in 2012 and 2013 that there was a projected strong start, and it has been a little bit off in 2014. They’re projecting well over $100 billion in 2014. Candidly, there are many smart people in shops invested in that business that they’re going to make it work, and we’re only done with the first quarter, so the market will pick up. And there is always a demand for that type of product. Some of the opportunity funds may not be able to realize enough of return to entice investors. But the CMBS market will continue flourish and considerably exceed its 2013 numbers.

So the biggest problem we’re seeing out there is that there’s a lot of capital with nowhere to go. Is that a good problem to have as opposed to the opposite scenario?

Certainly, when the market cratered in late 2008, there was no capital out there other than the agency lenders that were continuing to do business. From GRS Group’s perspective, as a company that thrives on transactions, there is a more diverse pool of funds out there doing deals. There is a lot of international capital coming into the states, and it’s much more complex as to how they structure their deals. An intermediary working with a foreign debt fund, for instance, may have to line up mezz debt from a group in the States, and then match the funding with a solid sponsor to do the deal. You have to know all of those players to get that business from a transaction services basis.  There are fewer key aggregators because the market is so spread out. In the short term, we work harder to get to the front of the line for players to choose GRS Group for the transactional services and title business we do.  Over the longer term, it’s a good thing for us. There are more pools to dip into.

Do you have any strategy to harness some of those deals with international funding?

Some of the panelists talked about international money coming into the states and having to have a representative stateside, like a CBRE or a Colliers, to shepherd the deal.  GRS can mirror that platform because we have offices in the U.K. and on the Continent, actual boots on the ground there. We have representatives here who can also relate to those bringing deals into the states and understand how due diligence is done to U.S. standards. It’s a combination of boots on the ground for due diligence work and then the connections in the States where some of the deals are being transacted. Our Global Services Connection (GSC) platform can serve that need for all of the services we offer, whether it’s in the United States or abroad. It’s makes it simpler for various parties to execute a pretty complex transaction. They don’t need to make five or six calls internationally to get the due diligence and title services that they need. One call to GRS Group gets it done.

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