We Are in a Much More Challenging Market Today

Jay Maddox is a principal at Avison Young.

LOS ANGELES—It has been an interesting year to say the least for the debt and equity markets. Although the markets have recovered somewhat since then, we are in a much more challenging market today than last year, according to Jay Maddox, a principal at Avison Young. With a quarter left in the year, we sat down with Maddox for an exclusive interview to take a look inside the debt and equity markets, see how things have changed and where they are heading—and we ask the question that has the most well-informed experts debating: are we in for another recession? Here, Maddox answers all of our questions.

GlobeSt.com: Compared to six to 12 months ago, are there more challenges for investors and developers to secure debt today?

Jay Maddox: We are clearly in a much more challenging market than a year ago. Banks are being more selective and pricing has increased. In particular, this has affected the construction lending market with financing standards that have definitely tightened due in large part to new capital adequacy regulations under Basel III. Yesterday’s 65% loan is now 55%, and pricing is higher. There is also concern about continuing to lend on development at this point in the cycle, and some lenders are keeping their powder dry for existing relationships only. This retrenchment has opened the door for debt funds and private equity lenders who can be more flexible, but they are more expensive. We’re also seeing increased availability of mezzanine and preferred equity financing that is providing additional leverage on larger, better quality opportunities. So, the money is still there for good projects and strong sponsors, but it’s definitely tougher. Private equity investors are also “tapping the brakes” citing concerns that the cycle may have peaked and today’s high rent growth may not be sustainable.