Financing in a Down
Economy
Elusive Equilibrium:
Disparity Continues in the
Real Estate Financing Markets
By Gabriel Silverstein, SIOR
In a 45-minute span one recent afternoon, we were awarded a new
build-to-suit deal based on providing a creative full financing of
the project, and we also added a new lender to our list of secu-ritizing lenders. In that same 45 minutes, almost simultaneously,
Credit Suisse announced the shuttering of its CMBS platform only
a year after restarting it. Two steps forward, one step back. Such
has been the way of the real estate financing world the past 12-18
months. The effects on different sectors in real estate, on investors
and on tenants and brokers have been not only far-reaching, but
quite varied.
It would be inaccurate to make a blanket statement that financing is difficult to obtain in the market today. However, it would
certainly be less accurate to suggest that the financing market is
anywhere yet near a healthy equilibrium. Examining different market segments yields a very different view of the same world. Here I
will focus primarily on the office and industrial markets.
Build-to-Suit Financing
Much of what we do at Angelic Real Estate revolves around financing construction and long-term ownership of build-to-suit and
other single tenant projects. Single tenant properties of all asset
types have been one of the stronger performing investment real
estate sectors in the U.S. the past three years. Increasingly, that has
included larger industrial and office buildings costing $10 million
to $100 million, whereas three years ago, the market’s strength was
limited mostly to smaller retail buildings such as Walgreens and
CVS stores.
In 2009, there was literally one competitively priced financing
partner for build-to-suit projects (USAA), and they pretty much
funded every new industrial build-to-suit in the US for an 18-month
period. That finally began to change in mid 2010. For most invest-
ment grade and non-credit tenants there are multiple options for
almost any product type/variation and any market. It wasn’t until
mid 2011 that the lease terms weren’t a minimum of 15 years or
longer, but the less robust a local market, the more unique the
product, and the weaker the tenant credit, the more likely 12 or 15
years or more may still be required or may at least be able to gar-
ner significantly better pricing and terms for both debt pricing and
take-out values.
Multi-Tenant Buildings
The average office or industrial tenant is generally in a multi-tenant building. While Manhattan and Washington, D.C. class A
office buildings have gotten a significant amount of press the past
year, and Houston and Chicago both set all time price per square
foot sales records on trophy office buildings in 2011, the falloff in
financing liquidity from trophy buildings in core markets to the rest
of the world is a dramatic one.
The competition among the CMBS lenders who have remained
active, and more recently among the larger life insurance companies and pension funds, has been dizzying for trophy office properties in top-tier or high second tier cities. These lenders, however,
have been participants at much lower leverage points than five
