SAN DIEGO—With all eyes focused on the Mortgage Bankers Association's (MBA) CRE Finance conference, multifamily has been sector most of the discussions. But with retail activity either on fire or heating up in several metropolitan areas, it would be short-sighted to neglect the lending trends taking place in the sector. That's the opinion of Jimmy Board, an EVP in JLL's Capital Market Group. GlobeSt.com met with him to hear the five lending trends that are most impacting the industry.
GlobeSt.com: Take us through the trends you're seeing. You first mention an uptick in competition. How is that taking place?
Jimmy Board: That's correct, the lender pool continues to increase which creates significant competition in the market. Due to the liquidity of the debt capital markets and the pursuit of higher yields, all lender groups including life companies, CMBS, banks, pension funds and debt funds are placing capital on retail product on a national basis at loan-to-value ratios of 65-85 percent. Grocery-anchored assets in primary markets continue to attract the most aggressive capital, however the availability of capital for all product types and locations still remain aggressive.
GlobeSt.com: And what has that meant for loans and leasing?
Board: In loans and leasing—which is my next trend point—we're seeing non-recourse construction loans available for significantly pre-leased retail developments, 1.0x coverage or better. In addition, there is a significant amount of liquidity for redevelopment opportunities on well-located existing assets that have been mismanaged or need capital upgrades to attract national tenants.
GlobeSt.com: You mention life companies, banks and pension funds are jumping on board the retail bandwagon. Is the increase in institutional investment a surprise? Is the money going across the board?
Board: In many ways, no. Institutional investors are still under-weighted in retail and are most actively pursuing trophy assets in major markets and grocery-anchored strip centers. Expect an increase in acquisition financing, primarily funded by life companies and CMBS as they will continue to have a heavy appetite to help balance out their allocations.
GlobeSt.com: How has the price of oil impacted the sector?
Board: While the economy seems to be in shock about the rapid decline in oil prices, until there is a noticeable decline in jobs, lower oil prices are viewed as positive for the retail sector. The money saved at the pump is additional discretionary income people are spending on retail goods. Increased retail activity from consumer's builds investor and lender confidence in the sector.
GlobeSt.com: It wasn't long ago that e-tailers were believed to spell the end of physical locations. The trends say otherwise, however. How have retailers adapted?
Board: Two key factors play a significant role in driving consumers to brick-and-mortar locations: highly differentiated products and social media. While there is plenty of competition for value-priced products, consumers are willing to pay a premium for unique products that typically are not purchased online, while social media provides retailers and retail owners with additional touch points to the consumer. For example, retailers tweet out coupons for consumers to download on their phone to bring into a store and retailer owners use social media to drive awareness and promote sales and their respective locations. The more often consumers visit retail locations, the greater need there is for debt to maintain physical assets.
Follow Jimmy Board on Twitter for financing updates and insights: @Jimmy_Board10
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Geoffery Metz
Geoffery Metz is the content manager for ALM's GlobeSt.com, Credit Union Times and Treasury & Risk. Before joining ALM, he spent several years overseeing the newsroom at the financial wire service Business Wire, with special focus on multimedia presentation for the web.
