CREJ - Journal

Page 22 —

COLORADO REAL ESTATE JOURNAL

— May 6-May 19, 2015

Finance

ith the first quarter

of 2015 in the books,

lenders’ appetites for

commercial and multifamily real

estate loans continue to be some

of the strongest on record.

The Mortgage Bankers Associ-

ation, a Washington, D.C.-based

trade group that represents the

broad capital spectrum of com-

mercial and multifamily real

estate finance, recently reported

that total loan origination for

2014 was near $400 billion with

a record year for life insurance

companies and for the govern-

ment-sponsored

enterprises

(Fannie, Freddie and FHAmulti-

family) and the secondhighest on

record for banks. The commercial

mortgage-backed securities mar-

ket continued its rebound with

securitizations of commercial

and multifamily loans reaching

$106.3 billion of the year’s total.

Multifamily continues to be the

leading property type by dollar

volume of new loans, followed

by office, retail, hotel and motel,

industrial and health care. The

2014 dollar volume was 12 per-

cent higher than the 2013 vol-

ume. With record loan maturities

occurring in 2015, 2016 and 2017,

industry leaders expect to see

new loan origination volumes

remain high.

For the borrower, the positive

news continues with record low

interest rates persisting. Virtually

all market participants agree that

higher rates must come, but the

timing remains cloudy at best.

The competition among lend-

ers for low-leverage loans to the

most creditworthy borrowers on

high-quality properties is con-

tinuing to surprise most mort-

gage bankers.

Even higher

leverage loans

lesser-

quality assets

are drawing

more interest

than at any

time

since

the

down-

turn began in

2008. Another

unique char-

acteristic of

the current

market is the

availability of very long-term

money. While the 10-year term

is the norm, many life companies

are now offering fully amortiz-

ing loans with terms as long as

30 years. A few are even testing

longer terms for the most desir-

able multifamily deals as a way

to compete with the GSEs.

On the positive side for the

lender is the fact that sound

underwriting standards remain

in place, and there are few

instances of relying on “finan-

cial engineering” to make a deal

work. Soundmarket fundaments

are also in place in most mar-

kets, including declining vacan-

cies and increasing rents, which

serve to mitigate some of the

concern over the decline in cap

rates, especially in the apartment

sector, where significant buyer

demand is driving up prices.

New speculative construction

has been held in check, helping

to increase occupancy levels.

Colorado, and Denver in par-

ticular, is benefiting from the

abundance of capital looking to

invest in commercial and multi-

family real estate. Denver contin-

ues to show strong employment

growth, which, coupled with

the state’s continued population

growth (fourth-fastest growing

state for the second year in a

row), makes it a logical target

for real estate investors and the

lenders that provide them with

capital.

While the commercial real

estate industry is cyclical in

nature, most industry partici-

pants expect the current expan-

sion cycle to continue for the

foreseeable future, barring any

negative unforeseen geopolitical

events. If you are a long-term

owner of income property, our

best advice is to lock in today’s

rates for as long as you can. Hind-

sight may just show that this was

one of the best times in modern

history to finance commercial

and multifamily real estate.

Commercial real estate finance market remains strong in 2015

Michael Kelly

President, Q10|Realty

Mortgage &

Investment Co.,

Denver

Another unique

characteristic of

the current market

is the availability

of very long-term

money. While the

10-year term is

the norm, many

life companies are

now offering fully

amortizing loans

with terms as long

as 30 years.