Commercial Investment Real Estate November/December 2018 | Page 35

DEBT
CAPITAL
MARKETS
REBOUND
While deals are less complex,
liquidity flows from varied sources.
by Constantine Korologos, CRE, MAI, MRICS
T
he financial crisis that escalated in 2007 with the resi-
dential subprime collapse and later the bankruptcy of
Lehman Brothers in 2008 changed our financial mar-
kets forever, particularly real estate capital markets.
When you layer on the impact of technology and changes in
preferences and tastes for space use, the combined effect is even
more profound. The debt capital markets industry hit bottom
before a recovery began, and many casualties would never recover.
The public outcry was loud, and regulation was implemented to
help mitigate the perceived greed and the losses in the future.
While the recession ended in June 2009, it took longer for
the markets to come back. Unemployment levels now match
lows that haven’t been seen in 18 years and, before that, since
that late 1960s. The challenge for many companies is finding
and keeping the right people — how much space they occupy
per person; where people live, work, and play; where and how
they shop; and what they spend their money on — and that now
presents challenges to capital markets participants. So how did
the industry fare in 2018?
Today’s Debt Markets
On the debt side, liquidity continues to flow. Options for a
debt bid are broad, varying from local banks, debt funds, com-
mercial real estate collateralized loan obligations, commercial
CCIM.COM
mortgage-backed securities shops, mortgage real estate invest-
ment trusts, private lenders, insurance companies, and even
developers who have started lending businesses.
Overall, the deals are less complex since CMBS 2.0 began
in 2010, although many large loans are being cut into several
pieces to be spread out across many CMBS deals. The amount
of leverage in the system has declined significantly since the peak
of the financial crisis, and while competition is growing to invest
capital, several alternatives are muting any undue aggressiveness,
at least for now.
Single-asset, single-borrower deals have seen significant growth.
For example, consider the 2016 loan on a single office property like
9 West 57th Street, a 1.6 million-square foot property in New York
City; CMBS debt was combined with private debt in the form of
privately placed B-note. Another example is a single loan to a single
borrower on a cross-collateralized portfolio of assets, like a pool of
hotels. During the first half of 2018, 50 percent of the new issuance
CMBS were single-asset, single-borrower deals, matching the total
conduit issuance.
Floating rate bridge financing has come back to the securitiza-
tion market, with a strong resurgence in the commercial real estate
CLO sector. Originations more than tripled from 2016 to 2017
($1.8 billion to $7 billion), according to Morgan Stanley’s com-
mercial real estate CLO tracker, and are on track to more than
November | December 2018
33