2022 MBA CREF Conference Takeaways
The Medalist Team recently returned from the annual Mortgage Bankers Association CREF Conference (“MBA”) in San Diego where we met with over 60 lenders including most of our correspondent life insurance lenders. Last year’s MBA was canceled due to Covid, and although frequent Zoom meetings throughout the year were a suitable alternative, they can’t replace the face-to-face interaction. Although MBA is a marathon of back-to-back meetings, it never fails to provide valuable insight into the CRE debt and equity capital markets.
The Conference tone was palpably positive and virtually every lender we spoke with (life cos, banks, debt funds, CMBS) reported that they met their loan production goal for 2021 and are targeting that much or more for 2022. Preferred collateral types continue to be multifamily (pre-stabilized and stabilized), industrial, self-storage and grocery-anchored or high-quality strip retail. Of the four primary property types, office remains a little tricky due to the continuing uncertainty around the impact of remote working and when and to what extent employees will return to the office. The good news is that Lenders are more positive than they were a year ago for the right location, adequate occupancy and strong WALT. Lenders still can’t seem to get enough industrial product as fundamentals remain healthy and the demand for last-mile distribution facilities for online commerce fulfillment steadily increases.
Liquidity is even more plentiful than a year ago and life company spreads are currently holding stable, making now an opportune time to seek financing. With BBB-corporate bond spreads 25-30 basis points wider than December 31, 2021, investment-grade corporate yields are approximately 100 basis points higher than one year ago. Most of our life company lenders acknowledged they would be monitoring corporate spreads, as mortgages offer relative value to corporate bonds for the Portfolio Managers. For now, mortgage spreads appear to be holding. We do not have a crystal ball or profess to be interest rate experts, but for the first time in more than a decade inflation has arguably taken hold and higher interest rates appear more likely than not.
Life companies continue to aggressively compete on multifamily and industrial properties. Spreads are generally 130 – 160 bps, with the tightest spreads we heard for new stabilized multifamily being around 110 bps for down the fairway, 55-60% LTV, A assets in the lender’s preferred markets. With the 10-year US treasury hovering +/- 2%, all-in loan rates are in the low-to-mid 3’s. Notably, some life companies have become more active as floating rate lenders (bridge and stabilized) with some pricing as low as SOFR plus 2%. While our life insurance lenders remain most focused on core product, many increasingly will consider opportunities beyond leverage thresholds they’ve historically underwritten to chase yield. We also heard more aggressive construction to perm strategies with lenders entertaining partially leased and speculative deals.
Debt funds were active last year given easy access to bank warehouse lines and a robust CLO market ($50 billion of new CRE CLOs in 2021 following the previous record of $45 billion in 2020) for offloading their positions when desired. Throughout 2021 debt funds consistently won deals for light value-add multifamily acquisitions with low 3% rates and high leverage. Above we noted that some life companies are increasingly offering floating rate debt. That includes various life company bridge programs that are now competing for and often winning higher leverage, pre-stabilized and value-add bridge loans. For example, these insurance company bridge programs offer flexibility and financing creativity for higher leverage value-add multifamily properties or perhaps more unique deals such as hotel conversions. Medalist Capital has been extremely active in this segment of the market, so please let us know if you have an upcoming financing need that could be a fit for this type of execution.
Looking ahead in 2022, we acknowledge market expectations for higher interest rates, but we can confidently state that commercial real estate fundamentals remain strong in our markets due to 1) local and regional economies that continue to grow based on favorable demographics, huge inbound migration, and robust job creation and 2) the continued flow of institutional capital into the Southeast. Almost without exception our lenders’ 2022 loan production goals exceed last year’s production and they remain aggressive lenders for quality product. While multifamily and multi-tenant industrial loans remain at the top of lenders’ wish lists, quality deals for other asset types will not be overlooked.
In summary: OUR MARKETS are strong, OUR LENDERS are liquid and eager to lend, and MEDALIST CAPITAL is uniquely qualified and positioned to help you obtain the absolute best financing terms possible for your acquisition, refinancing, or construction project. Please feel free to call us as you’re analyzing deals, as we are always happy to be a sounding board and provide current terms. 2022 is off to a great start and we look forward to assisting you with any or all of your financing needs!
Written by Clyde Nelson.