Just got back from the Bisnow Capital Markets Summit at the Westin in Buckhead.
Say what you will about the Bisnow guys, they can get a crowd together. All in all, I thought it was an interesting session with more optimism from the equity panel than the debt panel (surprise!!!). Bronfman of Jamestown had some interesting comments on the traditional fund model and I was surprised how much deal flow Cantor Fitzgerald claims to have closed.
My quick and dirty notes are below. Feel free to add anything you noticed in the comments below.
If you want to go to the next Bisnow event or subscribe to their newsletter (which I do), then check them out at Bisnow.com.
Brad Watkins of State Bank
Can look at recourse and non-recourse. Can go as high as 85% of cost if the cash flow validates it. Just closed on 3rd Whole Foods-anchored development. Also closed on the Hyatt deal in Midtown. May help a borrower look for capital partners on refinancing if property is under-water. Don’t see anything to give a significant uplift to the CRE community. Big concern about Atlanta is job growth.
Melissa Frawley of Wells Fargo
Banks have adjusted loan terms from the typical 5 year term to 10 years. working on balance sheet debt and have provided construction debt on multifamily. Can do recourse and non-recourse. Average deal is $15 – $20 M but can go as high as $100. Rates have been LIBOR plus 3%. Banks are coming back into thee market and are able to pick up some of the refinancings coming to market. Market feels choppy and sentiment can change from week to week. South Florida has shown better activity. Hot markets in the southeast are Nashville, Raleigh, and Charlotte. Borrowers need to tell a compelling story and be transparent about deal and deal structure. No surprises! Keep your bankers close.
Sam Kupersmith of Cantor Fitzgerald
CMBS rates are 4.5-5.0%. Closing loans between $1.8M – $230M. T12 numbers in multifamily are going up across the board. CF has the flexibility to do deals that the agencies and life companies can’t do. Has even closed on 60% occupied retail deal in Cumming. Prefer non-recourse. Closed a loan with a borrower with 16 defaulted or foreclosed debt. Just because rates are low doesn’t mean values are just as high. Cap rates are compressing, but appraiser are struggling to get to the value necessary for some of these deals.
John Beam of Centerline
Agency lender. 85% of deal flow last year was acquisitions. With low rates in the market, refinancing is popular. Average deal is $10 Million. Freddie did $20B in deals last year and Fannie did $25B. They have staffed up and seem poised to grow business this year. 10 year rates are at 3.5%. FHA mortgages are as low as 2.24%. Loans are required to have at least 5 years of amortization to have interest-only. Good developers who have weathered the storm have been coming back to the table for debt financing. Agencies have begun to look at equity sponsors with an open mind. Need to see that the borrower “did the right thing.” when looking for debt, you have to address everything upfront. No one is lending on trending or projections. What is the cash flow today?
Rick Booth of First Fidelity
Provided ground-up construction-perm. Primary focus is hospitality. Closed $240M retail deal. Office, Retail, and hospitality are well-received in LifeCos. LifeCos are being selective in their deals because of their competitiveness on rates.
Matt Bronfman of Jamestown
US benefits from being one of the taller midgets in the circus. Still a better place to invest than most places in the world. Certain markets are more favored than others, DC, San Fran, and NYC. San Fran is the hottest office market right now. Since they raise foreign capital, they are highly sensitive to ForEx rates. Tend to look at core with 10% IRR and opportunity deals in the mid-teens. Unique properties in unique locations have really weathered the storm better than almost anything else.
Jim Shelton of Carter
Value-add office seems appealing in most SE markets other than south FL. Approach is generally price per pound rather than a direct cap. Only significant office acquisition has been a FCL of the old Silverton building. Capital has high expectations with returns looking in the low-20s. LPs are looking for returns in the 20s as well. Eternal hunt for cheaper capital. Debt community has adjusted to new criteria and underwriting and have done a good job of staying in the market.
Andrew Trotter with Centennial Holding
Uncertainty abroad and in the election does affect each property type. It affects the overall prognosis of the economy, but apartment demand has been high because the supply was so low. They have experienced 4.5% rent growth and have trouble believing that there has been NO job growth. When cap rates start dropping, seasoned acquisition guys have to start looking for other metrics to value and justify purchases. Because of cheap debt, buyers can pay much lower cap rates and still hit the double-digit returns required by investors.
Acquire on a fund model rather than deal-by-deal basis. Tend to look for core deals rather value-add or opportunity.
Tim Perry of NAP
NAP is in many of the same markets as Carter, but return on costs are at least in the double-digits. NAP is not in the fund model. So needs to finance each deal individually. Plays exclusively in the opportunistic space looking for returns in the 20s plus. The most difficult piece of the capital stack is the construction lender.
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As part of our ongoing discussion on the Transportation Special Purpose Local-Option Sales Tax, or TSPLOST, referendum up for vote on July 31, let’s take a minuet to dig a little deeper into these projects on the proposed list.
We previously looked at a list of the projects proposed based on a map found at UntieAtlanta.com. Using that map, I counted 147 projects (some of the literature claims 157, but we are cloe enough to make some generalizations) spread across 10 metro counties. I am fully admitting that I may not have ALL of the information on this referendum, but I think I have MOST of it and that should be good enough to get a general sense of what is being proposed. If anyone knows of a more comprehensive or accurate resource than the ones I have used for my data-gathering, please let me know in the comments and I can update!
So, as we are trying to figure out whether this initiative will actually alleviate some of the traffic burdens of the metro area, let’s take a deeper look at the projects, their budgets, and noticeable trends.
The firs thing I notice is how spread out these projects are. I was under the impression that this was an Atlanta initiative. This looks more to me like an Atlanta MSA initiative with projects in every major suburban area (except the Panthersville/SE Atlanta corridor, interestingly).
This handy pdf from Georgia Trend shows a quick breakout of the projects by region as follows:
North Fulton – $384,900,000
Northeast – $898,950,000
East – $67,300,000
Henry County & Southeast – $213,000,000
Clayton County & South – $313,170,000
Southwest – $196,860,000
Douglas & Westside – $332,860,000
Downtown & Midtown – $601,892,477
City of Atlanta – $134,332,592
Dekalb Projects – $185,250,000
Total – $3,328,515,069
A few things that stand out when looking at these numbers.
The City of Atlanta is getting about $740 Million. That’s about $140 Million less than Gwinnett County.
Is anyone else surprised that the largest number is going to Gwinnett? What does that say about our transportation priorities?
Having said that, our last post had $112 Million going toward improving MARTA, so I suppose that could be counted toward in-town funds. But that is STILL less than is being spent in Gwinnett.
While we are on the topic, why am I paying for upgrades to MARTA? I don’t see any new branches being developed or neighborhoods being reached by our rapid transit. So why am I sending money to MARTA to update their elevators, ventilation , passenger notifications, etc? Doesn’t MARTA have it’s own budget?
Am I paying to bail out MARTA?
As far as the in-town stuff goes, you know I love the Beltline and think it’s a great draw for bringing people to the city.
I notice we are fixing some bridges downtown. Hmmmm. I also notice that our road projects in town seem to be cheaper than the suburban surface road improvements. Maybe that’s because some of those suburban improvements are widenings, but it seems odd that most of our road improvements are a couple hundred thousand dollars and most of the suburban deals are a couple million.
From my list, I counted a total of 82 projects that I opposed and 65 projects that I supported. That’s closer than I expected, but I still oppose more than I support.
All told, we are proposing to spend approximately $2,407,040,000 in the suburbs and $1,033,475,069 in town (I am including the Dekalb and MARTA stuff as in town).
So, in a city whose culture has been decimated by sprawl, we are proposing to fix our transportation issues by spending more than twice as much money on suburban projects as in town projects?
Hmmmmm . . . . maybe I am missing something.
What else did you readers notice? Any trends or special projects of interest that stood out as you were trying to wrap your head around this massive proposition?
Now that we have gone through what is in this deal, check back this week for an analysis of whether the DOT can pull this off.
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Now that we have a quick guide to the projects proposed on TSPLOST, let’s take a couple posts to answer the basic questions on TSPLOST that will help us figure out exactly what we are voting for on July 31st.
Specifically, let’s try to answer these:
What is it? – What projects are involved and what money is being allocated where? (This will be a follow up to our Quick Guide)
How Realistic Is it? – Can the DOT pull this huge project off in the timeline? It doesn’t matter how cool it sounds if the DOT can’t pull it off . . .
What specific problems will be solved? – I know we all want to Untie Atlanta. How will these projects do that?
What happens if it doesn’t pass? – Do we sink into a traffic-choked oblivion? Can we try again next year?
Given our future hope and dreams for the city, is this the best course of action?
Alright. That seems like a decent road map (pun!) that should get us to a “yes” or “no.” Check back over the next week or two as we will try to answer these questions as thoroughly as possible and get some debate moving on whether TSPLOST will truly untie Atlanta traffic.
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