“CREFC: Perspectives on Changes in the Real Estate Sector”
Industry experts weighed in on changes and opportunities in the commercial real estate financing market at the Commercial Real Estate Finance Summit West last Tuesday at the Fairmont Miramar Hotel & Bungalows in Santa Monica.
… And certain assets are attracting investors more than others, said William O’Connor, a partner at Thompson & Knight.
“If you have a multifamily in a primary market, of course everyone is going to chase that deal. A hospitality deal in Dubuque, you’re not seeing very many buyers, but I think a lot of our peer group is seeing just a thinner pack on the buy side as well,” he said.
The special servicing sector—once an area awash with activity as the tidal wave of 2007 and 2008 maturities moved through—has also now contracted, with far less deals in special servicing, O’Connor noted. He said he’s been seeing more deals being resolved through note or auction sales or through fair value purchase options.
“There is a lot of that stuff, particularly with legacy notes. I think it’s going to be very interesting going forward. And I think most of the activity is taking place at the private equity or opportunity fund level,” he said.
Those funds are taking on what O’Connor referred to as the “hairy stuff” or higher yield debt, such as mezzanine loans, bridge loans and short-term positions “that we used to call loan to own trades,” he said.
There is “still a lot of capital on the ground chasing yield” O’Connor said, but the problem is what they are chasing, as everything may not be as rosy as it seems.
“You read the reports on the drops in delinquencies and it’s really not true,” O’Connor said. “You’ve got to ask the question: What are they measuring? Well, they’re measuring CMBS pools. So, if Ten-X or Mission Capital or one of the other players gets in the middle and sells off that note for special servicers, it’s not in the [CMBS] pool anymore,” he explained. “So, one day $150 million is suddenly gone. It’s not an accurate picture of what’s going on with those real estate assets. You’ve got to remember that.”