Southeast debt and equity market

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Post on 10-Jul-2015



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In the last three years, commercial property lending has continued to gain momentum and it is fundamentally strong, while still maintaining disciplined underwriting standards. The fundamentals of the real estate markets also are improving via the growth in the housing markets, construction, industrial production, and the further strengthening of the consumer psyche. The convergence of these factors leads us to an optimistic 2014 forecast for the real estate lending markets. Banks now trust the improved value of real estate again, which results in increased lending competition that should keep spreads tight and fuel strong performance up the risk curve to broader geographies and asset types this year. To learn more, visit:


  • Southeast debt and equity market

  • Southeast debt and equity marketThe Southeast saw increased transaction volume in most markets during 2013. For instance, Florida saw a nearly 30 percent increase in sales transaction volume over 2012, with total sales increasing from $68.7 billion to $89.1 billion. Loan origination volumes followed a similar path and we see transaction activity only increasing during 2014 as continued economic growth gives both lenders and buyers increased comfort with investing in the Southeast. More and more life companies are seeking to put out shorter term floating rate debt to limit their exposure in what was, and still remains, a very low interest rate environment. Similarly, we expect both CMBS and Agency lenders to increase volumes in Florida and certain markets in the southeast.

    Jones Lang LaSalle

  • Southeast debt and equity marketIn the multifamily sector in 2013, Agency lenders reduced their target volumes in many markets in the Southeast, which gave an opening for Life companies, Banks, and CMBS shops to gain market share. Rising treasury rates also pushed many borrowers to consider floating rate financing over fixed rate. During 2014, we expect Agency lenders to compete with a renewed vigor for assets and to be the best option for maximum-leverage borrowers. For borrowers with value-add assets or lower-leverage needs, Banks and Life companies will continue to be an attractive source of financing, with flexible prepayment penalties, future funding options, and low rates. CMBS shops will continue to increase originations and will be competitive with agency lenders for loans from 70-75 percent and will offer decent periods of interest only important for buyers focused on initial yields.

    Jones Lang LaSalle

  • Southeast debt and equity marketFor borrowers with stabilized Class A office and/or retail assets in core locations, Banks and Life companies will be the best option for acquisition financing and for refinancing existing loans. For the best assets, we have seen spreads below 200 basis points on floating-rate loans from these lenders. For borrowers with higher leverage needs or secondary locations, CMBS shops will be the best option.

    Jones Lang LaSalle

  • Southeast debt and equity marketWe see CMBS loan volume increasing in 2014. This will likely go hand in hand with the continued increase in debt maturity volumes between 2014 and 2017. There are number of new players in the market and more groups equals more origination. For the U.S., we anticipate more than $100B in loans this year on the CMBS front. Underwriting standards have been and will remain tight. However, CMBS lenders are more willing to increase leverage and go to secondary/tertiary markets than banks and life cos. The average amount of leverage for these loans is 70-75 percent. The target (or best) CMBS borrower is seeking 70-75 percent leverage on a variety

    of assets (particularly office, retail, and hotel). Sponsorship (or investor type) is less crucial than the asset and market specifics.During early 2013, debt yield was the main limiter on loans. As interest rates have increased, we see debt service coverage ratios being the main limiter/determiner of leverage amounts.

    Jones Lang LaSalle

  • Southeast debt and equity marketLast year proved to be an interesting one for raising capital in the Southeast. With major treasury rate swings during the middle of the year, many acquisition groups found themselves renegotiating or rethinking fixed-rate loans as they were faced with lower loan proceeds and/or higher interest rates. However, core deals in core locations fared well during 2013 because they were often backed by floating-rate loans from either banks or life insurance companies that were pegged to LIBOR, which experienced limited movement during 2013.

    Looking to 2014, many of the lenders we have spoken with have indicated they have increased their allocations to Florida and other key Southeastern markets. All things equal, we see slightly higher interest rates for fixed-rate financing during 2014, reducing leverage levels slightly as underwriting standards (such as DSCRs) will not be relaxed. Attractive rates and the prepayment flexibility provided by floating-rate loans, both for core and transition properties, will continue to drive investors to partner with these types of lenders.

    Jones Lang LaSalle

  • Southeast debt and equity marketFor multifamily borrowers seeking max leverage, Agency lenders will continue to be the go to source of financing in most southeastern markets.

    Life Companies and Banks will offer attractive terms for moderately leveraged (+/- 65 percent) core assets or Class B assets in core locations with a clear value-add story.

    CMBS lenders will continue to be an outstanding option for office, retail, multifamily, and hotel owners/buyers with either Class B assets or assets in Class B locations.

    During 2013, the majority of development in Florida and the Southeast has been multifamily residential, which has attracted the lions share of Institutional joint-venture equity. During 2013, these investors were inundated with development opportunities which increased their selectiveness. We see this trend continuing as opportunity (and a resurgent development pipeline in many markets) causes these groups to increase scrutiny and to demand better terms.

    Jones Lang LaSalle

  • Southeast debt and equity marketInternational investors continue to pour capital into South Florida. They are generally focused on multifamily or major mixed-use projects, for example the $1.0+ billion Brickell City Centre. South American investors will continue to be a major source of equity for both development projects and stabilized Class A assets in core locations as capital from these sometimes turbulent economies seeks refuge in the relative safety of the U.S.s strong asset protection and banking laws. However, as many of these investors have been priced out of the Southeasts top markets, they have increasing looked to secondary markets/value add assets for investment opportunities.

    We see significantly more debt financing than equity financing. JV equity providers continue to evaluate projects based on location, sponsorship, and returns in that order. Equity remains extremely selective, however certain markets (such as the condo market in South Florida) are attracting significant capital and attention from equity investors.

    Jones Lang LaSalle

  • Denny St. Romain Managing Director Jones Lang LaSalles Capital 305 728 7395

    Download the complete report Debt and equity availability update: The guide to financial commercial real estate

    Jones Lang LaSalle


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