HFF Managing Director Ryan Ade is taking part in Real Estate Bisnow Philadelphia's Capital Markets and Real Estate Investments: The Ever-Changing Capital Stack and Real Estate Finance in '17 event on Tuesday, March 16, at The Westin Philadelphia hotel in downtown Philadelphia. Mr. Ade is the moderator for the Real Estate Finance: How Deals Are Getting Done in 2017 panel, which will include fellow commercial real estate industry leaders.
With more than 15 years of experience in commercial real estate finance, Mr. Ade works in HFF's Philadelphia office, where he is primarily responsible for placing debt and equity for owners of retail, multi-housing, industrial and office properties. Throughout the course of his career, Mr. Ade has completed more than $2 billion in commercial real estate transactions.
Financing Q&A with Ryan Ade
- How will the slowdown of CMBS lending in 2016 affect lending this year? In 2016, CMBS lending was off roughly 35 percent from its highs in 2015. In 2017, the market seems to have sorted out many of its issues and has stabilized. Underwriting has moved to a barbell approach with high leverage, low debt yield deals being offset by very low leverage loans, which are aggressively priced. The net effect is to make pools of loans much more moderately leverage at roughly 60 percent on average.
- How does a Federal Reserve interest rate hike affect CRE lending? The Federal Reserve only has limited control over the actual cost of capital in the market. We have had two hikes in rates, and the 10-year treasury was not impacted directly. Similarly, most bank loans are made as spreads to LIBOR, which has stayed at relatively low levels. Recent increases have not been directly tied to Fed moves. All of that being said, the general upward movement of rates happens when markets have high confidence in continued growth. While there are many fundamentals that point toward signs of health in the economy, there are also still headwinds.
- How have recent increases in construction costs impacted the pace of development? This has had more of an effect on whether deals move forward as much or more so than bank regulations. In order for institutional investment capital to be drawn to development, the yield relative to cost is probably the most important metric. Cost increases of 20 to 30 percent can cause that interest to wane very quickly.
- How does property type influence lending? In general, multi-family properties in good locations attract the most aggressive lending terms followed closely by multi-tenant industrial and grocery-anchored retail. Office, in general, is less sought after, with CBD/urban being more desirable than suburban. Hotels are at the back of the pack primarily due to the operating business nature of the real estate.
- How will the scaling back of banking regulations expected in 2017 impact lending? Dodd-Frank and government oversight into the commercial real estate lending markets has had its biggest effects on banks making construction loans and on CMBS. The general premise of these laws is to slow down the risk taking that caused the last real estate bubble, which burst in 2008/2009. On the construction lending side, without getting too technical, the banks have been incentivized by regulations to force more equity into development deals than in the past. The net effect is to try to slow overbuilding, but it is not clear how much of an effect that has had. Many non-bank (and, therefore, unregulated) lenders like debt funds and insurance companies have moved into the void to provide capital for construction. On the CMBS side, the laws have been designed not necessarily to curtail lending, but rather to improve the standards at which loans are made. This is primarily done by risk retention and forcing the lenders to hold some of the risk, and, therefore, be more careful with what kind of loans they make. All of this has to be examined in light of the new administration, which seems to have a more laissez-faire bent in its policy making.
Additionally, Jose Cruz, senior managing director and co-head of HFF's New Jersey office, will take part in the Real Estate Development and Capital Markets panel discussion that is part of the same event. For tickets to the event, of which HFF is a sponsor, visit Real Estate Bisnow's event website.