NEWPORT BEACH, CA-Banks will begin to come out of the bunkers and issue credit as the commercial real estate industry continues its recovery, Pat Jackson, CEO of locally based diversified financial-services firm Sabal Financial Group L.P., tells GlobeSt.com. As GlobeSt.com reported last week, Sabal experienced a banner fourth quarter of real estate loan portfolio acquisitions on behalf of its clients with a combined UPB over $1 billion and successfully closed 2012 with nearly $5.5 billion in assets under management.
Jackson says over the next two years, we should start seeing restoration to the capital and credit markets, and Sabal is looking to have a foot in both camps. “We think that the emergence of the distressed market is continuing, but maybe we would argue that we see the beginning of the end. It could be two more years. We see the result of banks shedding assets and getting healthy gain. As they start participating in the market and providing credit, we will start seeing banks coming back into the industry. We're going to have to have our place with the banks coming back.”
Sabal also looks to provide expert opinions to banks looking to get properties off their balance sheets as well as for M&A activity, as that market will become more active, Jackson predicts. “M&A will be a continued area for increased activity as banks start to look at partnering up with other banks for efficiencies in the marketplace.”
He adds that he sees a lot of opportunity in buying small commercial properties and land. In fact, land is a huge part of Sabal's holdings—55%, to be exact—and the firm is betting on developers wanting to buy land in order to meet the public's appetite for development. “There has not been a lot of new development activity over the last few years. There's been a shortage of lots, so it wouldn't be a bad time to be in the development business.”
This philosophy doesn't vary from the firm's primary investment thesis of believing in the collateral itself, Jackson says. “Middle-of-nowhere projects are dead and will be for a long period of time. New development in the right areas is key—development for development's sake didn't make sense for this cycle or the last.”
That said, Jackson says the reason for the lack of supply had much to do with building permits being pulled in the latter half of the 2000's, leaving a historically lower inventory coming out of the recession. “We've never had this huge a building cycle of new product, particularly in sub-commercial real estate assets like industrial. There's not a vast amount of unleased, completed, ready-to-go-live properties.”
Jackson also comments on the multifamily phenomenon, remarking that cap rates are super low and there's a lot of new construction beginning in this sector. “The reality is, will that new capacity come into the marketplace and cause distress? Occupancies are running 95% and above—will new development start putting downward pressure on occupancies?” Investors snatching up multifamily properties at high prices because interest rates are so low are relying on rental rates to increase in order to make their payments, and that will not be realized if there's too much product on the market, he explains.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
