Q10 Capital is celebrating a 20-year anniversary with over $72 billion in loans closed. Currently, our Q10 servicing portfolio has over $11 billion in servicing with over 1,700 in loans. Of that 1,700 loans, not a single one is in default. This stands in stark contrast to the headline news, which portrays a "commercial real estate apocalypse". Unfortunately, headline news is affecting the industry. Investment advisors and fund managers are often not wanting to be seen as increasing their exposure to CRE (even in good deals) purely because it wont look good to investors who pay attention to headline news. Thankfully, the life companies are still lending.
Noteworthy:
- Retail continues to gain more favor with more life insurance companies, looking at anchored retail centers and even power centers. We also have multiple sources for strip retail.
- Office lending remains sparse, with only a few lenders quoting office. And when they do, they would like multitenant and sub 45% LTV with good occupancy.
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Low spreads: we have one life insurance company lender that will go as low as a 120 basis point spread for Class A multi-tenant deals at low LTVs with a 2.0 DCR in place.
- Credit Tenant Lease loans- CTL lenders are still very active and have an easy time placing capital. There will be many new CTL opportunities on the market, with big boxes like Walmart developing new stores on long-term leases. With these deals, we will be able to fund up to a 1.0x coverage. Additionally, it is possible to do a CTL loan on the anchor, and then do a CTL land loan on the land beneath the entire retail center with a ground lease in place (bifurcated ground lease) .
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Owner-user industrial: Westcap has found that right now life insurance companies tend to be cheaper on owner user industrial loans than SBA. With a strong tenant and a long-term lease, Westcap can finance these industrial buildings with our most recent closing being at a 210 basis point cover. (6.28% interest rate).
- The road ahead: with the elections coming in November, it’s hard to know where rates will go as we see the fed likely to want to spin a positive story, but at the same time inflation doesn’t seem to be under control. We see many requests for five year terms (as opposed to 10) in order to take advantage of potentially lower rates down the road.
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Self storage: We have a self storage lender that will fund new self storage properties when they are completed at certificate of occupancy, even when they are still in in lease up with high vacancy. Loans range from $5 - 20 million with five-year terms and 25 year amortizations. Rates are around 7% with 54321 step down pre-pay and a 60% LTV on stabilized value.
Life Companies - Many life insurance companies have fresh allocations and capital to deploy. Favorite product types continue to be industrial, multifamily, retail and self-storage. Office and hotels are being underwritten tighter. We are seeing life companies underwrite to 1.05 - 1.40 DCRs, but higher interest rates are constraining LTVs to 65% on multifamily and commercial properties on a regular basis.
CMBS lenders are in the market for all product types, but with rates well above life companies. They are lending on hospitality but on conservative loan sizing at 12% to 13% debt yields.
Alternative Lenders - We also have long-standing relationships with many debt funds, bridge lenders and capital companies.
Fannie Mae and Freddie Mac Multifamily - We work with two of the largest and best Fannie and Freddie multifamily underwriters in the country, which can underwrite as high as 80% LTV and 1.20 - 1.25 DCR, but again higher interest rates are restricting LTVs.
Hud Loans – We are seeing increased interest in HUD loans on apartments. The HUD 221 (d)(4) (new construction) and 223 (f) (refinance) program can underwrite as high as 1.176 DCR for market-rate apartments, 1.15 DCR for affordable apartments, and 1.11 for subsidized apartments. The DCR is calculated using a 40-year amortization for the 221 (d)(4) program and a 35 year amortization for the 223 (f) program.
Q10 WESTCAP:
CLOSED RECENTLY
- $36,000,000 - 240,000 SF Single-Tenant Industrial (life company)
- $13,500,000 - 57,000 SF Retail Fitness Center (life company)
- $11,500,000 - 15,000 SF Retail Center Mid Construction (debt fund)
- $5,000,000 - 60,000 SF Multi-Tenant Retail (bank)
- $4,000,000 - 23,000 SF Owner User Industrial (life company)
Recent quotes, spreads and rate locks over the 10-year Treasury are in the following ranges:
LIFE COMPANIES
· Industrial 5.77% - 6.37% rates (1.50 - 2.10 spreads)
· Multifamily 5.77% - 6.27% rates (1.50 - 2.00 spreads)
· Self Storage & Retail 5.87% - 6.37% rates (1.60 - 2.10 spreads)
· Office 6.12% - 6.77% rates (1.85 - 2.50 spreads)
CMBS Spreads (the 10-Year SWAP presently stands at 3.90%):
· Multifamily 6.15-6.40% (75% LTV, 1.25 DCR,8.5 DY) 2.25 - 2.50 spreads
· Industrial, Office & Retail 6.15%-6.40% (75% LTV, 1.25 DCR,8.5 DY) 2.25- 2.50 spreads
· Self Storage 6.15%-6.40% (75% LTV, 1.35 DCR,9.0 DY) 2.25 - 2.50 spreads
· Hotels 6.40-6.65% (70% LTV, 1.40 DCR, 11-12 DY) 2.50-2.75 spreads
FANNIE & FREDDIE
· 5.32% - 6.32% rates (80% LTV, 1.25 DCR, 8.0 DY)
HUD
- 221 (d)(4) (New Construction) 6.10% rate (1.11-1.176 DCR using 40yr Amortization)
- 223 (f) (refinance) 5.75% rate (1.11-1.176 DCR using 35yr Amortization)
Construction & Bridge Loans
· We have a long list of banks, capital companies and debt funds with which to draw from. I have arranged over $2 billion in construction loans over my career, including running two bank construction loan departments. This said, banks have tightened up their underwriting dramatically and are being extremely selective.
