There continues to be plenty of capital available for the acquisition, refinancing and renovation of existing retail properties. However, new regulatory challenges have prompted banks to pull back on construction financing, says Phillip Bankhead, senior vice president, senior director in the Dallas office of NorthMarq Capital.
Nearly half of respondents (46 percent) view the availability of capital as unchanged over the past 12 months. The rest were split in their views, with 24 percent who said capital was more widely available and 21 percent who said it was less available. Another 9 percent were unsure.
The majority of respondents anticipate that loan-to-value ratios and loan terms will either stay the same or improve over the next year. Only 17 percent of respondents think LTVs will decrease, while one third believe that loan terms are likely to tighten.
“There is capital, but you may have to work a little harder to get the perfect fit for your acquisition,” says Bankhead. Most life companies, for example, were very close to hitting their annual targets in July. Those life companies still have an appetite for real estate lending and can raise allocations. However, the situation is making them more selective on the loans that they do for the remainder of the year, he says. CMBS spreads have improved, but the volatility in that sector has also created a bit more uncertainty.
“All of the market dynamics are in pretty good shape,” says Bankhead. So it’s not so much the economics of a particular deal, it is more a question of where we are in the real estate cycle and how much more growth is ahead, he says.
Respondents have mixed views on whether interest rates will increase or stay the same over the next 12 months. To that end, 45 percent predict an increase, while 41 percent think rates will remain the same. Overall, the average increase expected is a slight 11.2 basis points. Another 12 percent anticipate that interest rates will decline. “I don’t see a lot [of] impetus for interest rate increases right now. Frankly, that is probably even more so after the Brexit vote and the impact on both the United Kingdom and the European Union,” says Bankhead.