BETHESDA, MD–Last month John Campanella, executive managing director of Equity, Debt and Structured Finance at Cushman and Wakefield, secured a loan for MRP Realty for Montgomery Tower, a 12-story Class A building here.
“It was a fantastic execution,” Campanella tells GlobeSt.com.
All told, he said there were 12 interested lenders, including commercial banks, money center banks, and offshore banks — all chasing the deal very aggressively. The pricing ultimately was comparable to a stabilized asset in the CBD.
The loan was a fixed-rate deal with the ability to do a future fund so that the owner can continue its renovation plan and stabilize the building.
In many ways the Montgomery Tower transaction was about the sponsor. “They are arguably the best in the market and lenders are focused on them,” Campanella says.
But it is also worth noting that the loan was partially a fixed-rate — a loan type that is becoming more expensive.
“Because we're late in the cycle, people are less likely to take a lot of floating rate risk, so demand for fixed-rate products is increasing,” Campanella says.
Banks, while they are constrained by such factors as regulations, are also grappling with the growing cost to fix their rates in order to satisfy demand of borrowers looking for fixed rate money.
In short, the cost to hedge their loans has become very expensive. Moving forward the banks are going to have a very difficult time competing with the life companies for the stabilized fixed rate transactions, Campanella says. “Ultimately this will put pressure on the banks to lower their spreads even further in 2018.”
But this is not an issue for borrowers, he adds. “At this part of the cycle the pendulum is swinging back toward the life companies and pension funds for the low priced fixed-rate money with more term.”
“There is no shortage of capital out there,” Campanella says. “There are a lot of options for borrowers on both the fixed and floating rate.”
BETHESDA, MD–Last month John Campanella, executive managing director of Equity, Debt and Structured Finance at Cushman and Wakefield, secured a loan for MRP Realty for Montgomery Tower, a 12-story Class A building here.
“It was a fantastic execution,” Campanella tells GlobeSt.com.
All told, he said there were 12 interested lenders, including commercial banks, money center banks, and offshore banks — all chasing the deal very aggressively. The pricing ultimately was comparable to a stabilized asset in the CBD.
The loan was a fixed-rate deal with the ability to do a future fund so that the owner can continue its renovation plan and stabilize the building.
In many ways the Montgomery Tower transaction was about the sponsor. “They are arguably the best in the market and lenders are focused on them,” Campanella says.
But it is also worth noting that the loan was partially a fixed-rate — a loan type that is becoming more expensive.
“Because we're late in the cycle, people are less likely to take a lot of floating rate risk, so demand for fixed-rate products is increasing,” Campanella says.
Banks, while they are constrained by such factors as regulations, are also grappling with the growing cost to fix their rates in order to satisfy demand of borrowers looking for fixed rate money.
In short, the cost to hedge their loans has become very expensive. Moving forward the banks are going to have a very difficult time competing with the life companies for the stabilized fixed rate transactions, Campanella says. “Ultimately this will put pressure on the banks to lower their spreads even further in 2018.”
But this is not an issue for borrowers, he adds. “At this part of the cycle the pendulum is swinging back toward the life companies and pension funds for the low priced fixed-rate money with more term.”
“There is no shortage of capital out there,” Campanella says. “There are a lot of options for borrowers on both the fixed and floating rate.”
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
