Phoenix-based Tower Capital is seeing a surge in loan activity. The company has closed a record-breaking $70 million in deals in the last 30 days, and is on track to break an annual record as well. Tower closed a total of eight deals, including a $17.3 million 10-year loan for Resort on 35th Avenue with a 3.79% interest rate.
"Our strong activity over the past 30 days has been driven by robust investor demand coming to Phoenix from other markets, such as California and Denver, where cap rates and yields are much lower," Kyle McDonough, principal at Tower Capital, tells GlobeSt.com. "Arizona is benefiting from some of the highest population growth in the nation, creating continued demand for housing and driving up rental rates and property values."
The increasing regulatory environment in California has also fueled activity in the Phoenix area, and as a result, has fueled loan activity. "New rent control laws recently enacted in California provide further incentives for investors to flee those markets," says McDonough. "In addition, a continued low interest rate environment and abundant liquidity in the capital markets provides additional oxygen for the commercial real estate market."
That decrease in interest rates have also fueled the surge in loan volume, and long as interest rates remain low, McDonough expects strong activity through 2020. "As long as interests rates remain low, there should be strong activity," he says. "If we experience a spike in rates, activity will slow dramatically as many deals will no longer pencil."
This surge may have been record breaking for the month, but it is consistent with the strong activity the firm has seen throughout 2019. "Investor demand has been very strong all year. Our origination volume will double year over year, mainly attributed to some larger construction loans we have financed," says McDonough.
In its most recent batch of closings, Tower Capital mostly apartment properties as well as hotel deals, however, McDonough says there is strong demand across asset classes. "Investor demand for most asset classes remains strong nationwide, especially in multifamily and industrial," he says. "Office is market by market, and even retail is beginning to show some signs of life in some places."
With loan interest rates, fixed-rate product is the most popular. "Depending on the investment goals and objectives of the borrower, we are seeing a lot of demand for long-term permanent fixed-rate financing to take advantage of today's historically low rates, as well as a lot of continued activity in value-add bridge space," says McDonough. "Multifamily is showing the most demand of all of the asset classes with a lot of requests for construction financing for new developments. Out of all of the types of loans, construction financing has seen the most growth in demand."
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Kelsi Maree Borland
