GlobeSt.com: It's been rumored that Trump may repeal the new Dodd Frank CMBS regulations. If this occurs how will this impact the CMBS market?

Ward: Dodd Frank was passed as a direct response to the 2007-'08 financial crisis. The act was widespread and touched on virtually all aspects of the financial services industry. These new regulations also had an indirect and direct impact on commercial real estate lending. Indirectly, all lending institutions had to dramatically increase their compliance departments, adding substantial time and cost to their operations. Directly, risk-retention rules enacted under Dodd Frank made CMBS lenders retain 5% of the loans they issue as opposed to selling them off as bonds.

Many of the larger banks originate $1 billion to $5 billion of mortgages annually. This is a significant amount of capital that must remain that was previously leveraged. The direct result of maintaining this investment is an increase of seven to 10 basis points in the pricing of commercial mortgages that are contributed to the pool for securitization.

Trump's potential repeal of Dodd Frank will likely immediately loosen regulations in the CMBS market. We may also see an increase in the number of small CMBS lenders willing and able to provide debt.

GlobeSt.com: How will Trump's policies on trade impact industrial real estate in the new year and financing for industrial properties moving forward?

Ward: It is too early to determine exactly which policies will take form and how they may impact commercial real estate over the course of the next year. That said, we do anticipate that the new administration's aggressive stated trade policies will likely be moderated. As well intentioned as they are, we believe that implementation will be less dramatic and not initiate a trade war.

However, if stiff tariffs are imposed, this would definitely impact industrial real estate. The costs of consumer goods will increase, while exports and imports decrease. If not coupled with strong economic growth, this activity could significantly impact jobs in certain areas across the country. This is especially true for border-adjacent markets like Southern California, which also has a large dependence on the two major ports.

GlobeSt.com: Interest rates have already seen an increase this year, do you anticipate they will continue to rise?

Ward: We believe there will be a slight increase in long-term rates and that the Fed will likely increase short-term rates possibly two more times this year. However, we do not anticipate that this will impact the velocity of sales and refinancing.

The long-term low of the 10-year T-bill was July 8, 2016, when it dropped to 1.37%. That said, over the last 12 months, it has averaged around 1.8% for most of the year. The 10-year T-Bill is currently at 2.42%, a 60-basis-point increase from the yearly average. With this increase in interest rates, credit spreads decreased slightly. This is offsetting the rate increase and putting the rate increase to the borrower more in the 40- to 50-basis-point range. This puts most five- to 10-year rates to the borrower in the mid 4% range, which is still an attractive rate.

Further, a significant portion of today's maturing loans were made in 2007, when the 10-year Treasury bill was in the high-4% range. This means that loans that are maturing have coupon rates in the high-5% to low-6% range, still making it attractive to replace maturing loans despite recent increases in interest rates.

For example, we recently funded two low leverage loans on two freestanding Ralphs' stores in Los Angeles. The coupon rate was 3.85% fixed for 10 years, amortized over 30 years. When locked, it was 1.5% over the corresponding 10-year Treasury bill.

NEWPORT BEACH, CA—The new administration has created some uncertainty in the marketplace, but we do not anticipate a significant impact on financing in Q1 and Q2 this year, MetroGroup Realty Finance's founder Patrick Ward tells GlobeSt.com. We sat down with Ward to discuss just how the Trump administration will affect financing in the first half, possible scenarios for CMBS and the outlook for industrial.

GlobeSt.com: Now that the new administration has taken office, how do you anticipate this may impact financing in the first two quarters of this year?

Ward: The new administration has created some uncertainty in the marketplace, but we do not anticipate a significant impact on financing in Q1 and Q2 this year. The US and the world financial markets have not been derailed by Trump's election and other unexpected events, such as the passing of Brexit. Over the course of the last eighteen months, the markets appear to be accepting and adapting to change.

That said, the three main immediate goals outlined by the new administration—investment in infrastructure, rolling back regulations and tax reform—are all very positive influences for the growth and health of real estate, so our outlook is optimistic.

GlobeSt.com: It's been rumored that Trump may repeal the new Dodd Frank CMBS regulations. If this occurs how will this impact the CMBS market?

Ward: Dodd Frank was passed as a direct response to the 2007-'08 financial crisis. The act was widespread and touched on virtually all aspects of the financial services industry. These new regulations also had an indirect and direct impact on commercial real estate lending. Indirectly, all lending institutions had to dramatically increase their compliance departments, adding substantial time and cost to their operations. Directly, risk-retention rules enacted under Dodd Frank made CMBS lenders retain 5% of the loans they issue as opposed to selling them off as bonds.

Many of the larger banks originate $1 billion to $5 billion of mortgages annually. This is a significant amount of capital that must remain that was previously leveraged. The direct result of maintaining this investment is an increase of seven to 10 basis points in the pricing of commercial mortgages that are contributed to the pool for securitization.

Trump's potential repeal of Dodd Frank will likely immediately loosen regulations in the CMBS market. We may also see an increase in the number of small CMBS lenders willing and able to provide debt.

GlobeSt.com: How will Trump's policies on trade impact industrial real estate in the new year and financing for industrial properties moving forward?

Ward: It is too early to determine exactly which policies will take form and how they may impact commercial real estate over the course of the next year. That said, we do anticipate that the new administration's aggressive stated trade policies will likely be moderated. As well intentioned as they are, we believe that implementation will be less dramatic and not initiate a trade war.

However, if stiff tariffs are imposed, this would definitely impact industrial real estate. The costs of consumer goods will increase, while exports and imports decrease. If not coupled with strong economic growth, this activity could significantly impact jobs in certain areas across the country. This is especially true for border-adjacent markets like Southern California, which also has a large dependence on the two major ports.

GlobeSt.com: Interest rates have already seen an increase this year, do you anticipate they will continue to rise?

Ward: We believe there will be a slight increase in long-term rates and that the Fed will likely increase short-term rates possibly two more times this year. However, we do not anticipate that this will impact the velocity of sales and refinancing.

The long-term low of the 10-year T-bill was July 8, 2016, when it dropped to 1.37%. That said, over the last 12 months, it has averaged around 1.8% for most of the year. The 10-year T-Bill is currently at 2.42%, a 60-basis-point increase from the yearly average. With this increase in interest rates, credit spreads decreased slightly. This is offsetting the rate increase and putting the rate increase to the borrower more in the 40- to 50-basis-point range. This puts most five- to 10-year rates to the borrower in the mid 4% range, which is still an attractive rate.

Further, a significant portion of today's maturing loans were made in 2007, when the 10-year Treasury bill was in the high-4% range. This means that loans that are maturing have coupon rates in the high-5% to low-6% range, still making it attractive to replace maturing loans despite recent increases in interest rates.

For example, we recently funded two low leverage loans on two freestanding Ralphs' stores in Los Angeles. The coupon rate was 3.85% fixed for 10 years, amortized over 30 years. When locked, it was 1.5% over the corresponding 10-year Treasury bill.