Senior Vice President, Capital Markets
A panel on the real estate capital markets brought together some of the biggest names in the industry including Mark Wilsmann, head of real estate portfolio management at MetLife, Dennis Schuh, head of CMBS for JPMorgan, Peter Sotoloff, Managing Director of Blackstone Real Estate Debt Strategies and Ira Schulman, Managing Director and Co-Founder of Walton Street Capital.
Most of the conversation focused on the return of capital to the commercial real estate market. Mr. Wilsmann from MetLife said that they plan on hitting the $6 billion mark in originations by July 1st, and could potentially double that amount for all of 2011. As a point of comparison, MetLife originated $6.7 billion of debt in all of 2010. Mr. Schuh said that JPMorgan alone could hit $10 billion in new CMBS originations in 2011 – almost equal to the entire CMBS market for all of 2010. Mr. Schulman said that Walton Street has already invested $900 million in commercial property in 2011 with a significant amount going to office, hotel and retail properties.
The moderator of the panel, David Sonnenblick, asked how life companies have become so competitive given that they haven’t really changed their risk profile. Mr. Wilsmann pointed to a number of interesting factors reshaping the dynamic of the lending market. First among them is that the market downturn has created smarter borrowers. Borrowers he said want relationships again and don’t want to deal with the complexity of highly structured deals and servicers that treat them like numbers. In addition, life companies can be flexible on structure and can work with borrowers on things like prepayment fees – which are basically set in stone for CMBS loans. Mr. Wilsmann said that life companies now don’t see mezzanine financing behind their senior as a bad thing – depending on the mezz provider. He said that if Blackstone provided the mezzanine financing behind one of his loans for example, he would have more comfort and view it as having two strong sponsors and an “equity cushion.” Lastly, life companies he said can easily do very large loans without jumping through a lot of hoops or worrying about the exit and this gives them a big advantage over CMBS, mortgage REITs and private equity.
The conversation then moved to leverage and pricing. Life companies will still be in the 60 – 65% range and CMBS will go up to 70 – 75%, with pricing for both ranging from 4 – 6%. Blackstone is providing subordinate debt in the 70 – 80% range at yields of 10 – 11%. On the equity side, Walton Street is still targeting yields in the teens but will go sub-10% in some cases. Overall the panelists were very positive on the market and were excited about the opportunities available despite the increasingly competitive environment.