Who can ride the CRE volatility wave?

Panelists say CMBS is back ... for now

TRD New York /
May.May 11, 2016 07:00 AM

UPDATED, May 16, 4:30 p.m.: Faced with a “choppy market,” RXR Realty and Westbrook Partners turned to a non-traditional lender for help in buying a property in the Brooklyn Navy Yards last fall.

“Banks looking at development at the time were kind of recoiling,” Michael Maturo, president and CFO of RXR, said during a panel at Weiser Mazars’ Commercial Real Estate Summit on Tuesday. “There’s always someone to fill the void.”

Starwood Capital Group provided $90 million to help finance the purchase of 47 Hall Street and another $71 million to redevelop the property. Much of Tuesday’s panel focused on the volatility of the market and the slowdown in certain construction financing. Banks are pulling back, leaving non-traditional lenders to fill the gap. RXR itself is getting into the game: It recently provided a $500 million mezzanine construction loan to Extell Development for three residential projects.

Drew Fletcher, president of the Greystone Bassuk Group, said that capital is available, though conventional lenders are “dialing up recourse and pulling back on leverage.” Land prices and availability, however, continue to be a problem.

“It doesn’t seem like the issue is the availability of capital. The issue that a lot of our clients are facing is just identifying good product,” he said during the panel. “We’re in a market right now that is generally, I think, a bit toppy, given where the pricing is, so if you’re thinking about development assets it’s become more challenging to find sites that are suited for development where prices going in make sense.”

However, non-traditional lenders come with their own risks. Gamma Real Estate foreclosed on 3 Sutton Place after the Bauhouse Group defaulted on its hefty $147 million loan. In February, the Durst Organization moved to foreclose on Ian Bruce Eichner’s 1800 Park Avenue.

Maturo said it’s good that the market is showing some discipline where construction in concerned. He said there’s a “deceleration” in construction funding, though not a full drop off.

The discussion also turned to the decline in commercial mortgage-backed securities (CMBS) at the end of 2015 and beginning of 2016 — driven in large part by uncertainty surrounding global bond markets and federal “risk-retention” rules that kick in at the end of the year. Maturo said the market in January was a nightmare, but in just the last couple of weeks, CMBS players have re-emerged.

“It’s snapped back dramatically,” Maturo said. “It’s going to be this kind of continued wave of volatility in terms of the capital being out there, but kind of re-entrenching at certain times, and you’re going to have to be able to hopefully ride through.”

Correction: An earlier version of this post misstated Drew Fletcher’s title.

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