CREFW-Summer2015

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CRE Finance World Summer 2015
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Clay Sublett. Certainly, one of the challenges of the banking sector
is that there are somewhere between 6,500 and 7,000 banks.
Spencer Kagan. There has been a lot of capital raised for lending.
In reference to the 40 or so CMBS lenders out there, I think we’re
at the leading edge of the big maturity wave and I think much of
the dollars raised are in anticipation of that big wave. I don’t think
we’re quite at equilibrium at this stage. It could come later this year
or into next year possibly, but I don’t think we’re there yet. There
should be an opportunity for improvement on the credit side as
lenders obtain the ability to choose from an increasingly larger
pool of potential loans.
Larry Brown. I agree with the crew; there is a sound balance right
now. The bad news in terms of the competitive environment is
that supposedly there were 30, as-in, three zero, different CMBS
lenders as of mid-March. The good news is that there are a record
number of 7- and 10-year loans coming due in 2015 through 2017.
Clay Sublett. Spencer, let me ask you a question on CMBS. As a
portfolio lender, I can survive on my portfolio, same as Brian. If I
choose to back away, I have a portfolio
earning assets and certainly, I have
maturities and things of that nature.
So does a CMBS lender feel: ‘I’ve got to
make loans because I don’t have a portfolio
that’s generating interest margin?’
Spencer Kagan. It’s a good question.
But, I think the goal is always the same
for us; we want to strike a balance between finding collateral that
we’re comfortable with and being able to put money out in a
competitive environment.
What’s Your Lending Sweet Spot?
Stephanie Petosa. What do you consider your ‘sweet spot’ to be
when operating in today’s ultra-competitive lending environment?
Is there a loan size you prefer, a particular borrower profile, or
particular markets? Are you competing against all lender types
or just those within your sector?
Spencer Kagan. We look at it from two different perspectives:
lending for conduit execution and lending for single-borrower
execution. For both, a critical factor is relationships and do they
provide us with a little bit of an edge. We want to lend into situations
in which we may have an existing relationship. Such relationships
come through our different platforms: real estate investment
banking or wealth management, for example. Such opportunities
also might come via relationships with brokers with whom we’ve
done a substantial amount of business. In a conduit execution,
we look first to leverage those relationships to win a deal and then
look for some balance in terms of creating diversification via
geographic locations and property type. For standalone CMBS,
it’s a little bit different because our execution isn’t so much tied
to pool diversification.
Larry Brown. Our average loan size is about $12 million, which is
probably smaller than many of the bigger shops. We don’t have a
volume target. As noted earlier, every good lender should be saying
no to more loans than they are saying yes to. So we have sort of
a Starwood-specific response versus a global industry answer.
We are owned by LNR, a B-piece buyer and the largest special
servicer. LNR sits on our credit committee. I like to joke that I know
more about a loan at the application stage today than I used to at
closing prior to having access to LNR’s database of information.
We try to compete on loans that make sense; loans that we don’t
think are going to default. LNR assumes they are going to own the
B-piece on every loan I close; they’re going to have the exposure
for 10 years—so you can understand that there’s an extra level of
discipline at SMC than there might be at other houses who assume
every loan closed will be entirely off their
books in 45 days.
Brian Furlong. Our normal loan size is
$30 to $70 million. Yet, we do much
larger loans also, so one sweet spot for
us is very large deals, many hundred
million dollar deals. We have a low cost
of funds. It’s not that hard to compete
when you’re triple-A rated. You can out price others if you care to.
We have a mix of fixed- and floating-rate money, which is relatively
unusual for insurance companies. And, sometimes, we can put a
floating-rate component in a fixed-rate deal to allow for prepayment
without yield maintenance.
Stephanie Petosa. Do you find yourselves competing with each
other within each segment or are you going across segments?
Brian Furlong. We are competing in fixed-rate debt with a mix of
insurance companies and CMBS lenders. While life companies win
many of the best institutional loans, some first-rate assets do go to
CMBS, particularly in the large-loan area. For example, the Houston
Galleria just went CMBS and at very tight pricing. We compete with
banks too on big deals, particularly floaters. We don’t compete as
often with CMBS lenders on floating-rate loans, because CMBS
originators often combine a mezz loan with a mortgage loan to get
to a leverage level higher than our targets.
A Lender Roundtable: Real Talk from Real Lenders on Today’s Competitive Commercial and Multifamily Lending Environments
“I think that the market is fairly well
balanced in terms of lender supply
and demand. Sure, there are a lot of
lenders, but there is a lot of demand
as well.” Brian Furlong