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CRE Finance World Summer 2015
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Clay Sublett.
On the margin, we all compete with each other, but
there is certainly more competition within each lender type. It’s
always surprising when you think you complement a lender and
then all of a sudden they start competing with you. An example
would be multifamily deals that we lost to the agencies. The agencies
have become very competitive on value-add multifamily.
Spencer Kagan.
Our lending program has a pretty wide spectrum.
We compete with conduit lenders in the $10 million space and
compete with life companies on very large transactions. So there’s
no rule of thumb; but generally we tend to be fairly competitive
in CMBS up to $100 million in size and then between $100 and
$300 million life companies become competitive. However, once
a deal gets to be of a certain size, like Houston Galleria, CMBS
lenders tend to come back in competitively on these high-quality
assets. On the really large loans, it may be a club deal with an
insurance company versus a CMBS execution. Borrowers for
those very large deals tend to favor the CMBS execution.
Brian Furlong.
I think life companies can do club deals on a single
asset up to about $1 to $1.4 billion. There was kind of a ‘tooth-
and-nail’ competition on 200 Park Avenue (the MetLife building).
It went to CMBS ultimately, but the life company club bid it very
aggressively and that was about a $1.4 billion transaction. That’s
sort of the upper end of where the clubs cut off on the life-company
side. Larger balances are possible for portfolios.
Stephanie Petosa. Tell our readers a little bit about your borrowers.
Describe your typical borrower profile.
Clay Sublett.
In the banking environment, we like deposits and we
like relationships. We do very little broker and intermediary business.
That is not to say we don’t do any, but it’s very rare. We’re not
chasing transactions; our first discussion is about the borrower and
does the borrower fit our target? Our typical borrower is a long-term
holder; this doesn’t mean they hold everything, but that they have a
philosophy of holding and thus are not just merchant builders. We view
ourselves — especially on the balance-sheet side — as short-term
lenders. We don’t want to be a permanent lender. We would rather
complement a CMBS, agency, or life-company execution. We want
borrowers who understand we are going to provide them balance
sheet as a means to secure a permanent execution. It is important we
understand their business platform; are they ground-up construction,
acquisition rehab, and/or opportunistic buyers.
Larry Brown.
When so many lenders are seeing these packages,
the resulting deals can be pretty negative for bond investors. One
of the things I enjoy about having a smaller-borrower profile is that
these borrowers tend not to be as demanding and a lender can
therefore structure a sounder deal. As a lender, the old adage ‘Be
careful what you wish for’ often applies when dealing with some of
the larger institutional borrowers.
Spencer Kagan.
I have a different perspective than Larry on that
point. We often see these large transactions from brokers. Yet,
when we win these deals it’s often because we have some other
established relationship with the borrower beyond the brokerage
business. These borrowers may be a real estate investment banking
client, we may be providing them with some advisory service…so
we’re more than just a commodity to them. And, although those
deals tend to price tighter than conduit loans, they allow us to put
out substantial dollars and create loans with added structure. In the
conduit space, we oftentimes deal with repeat borrowers, although
we may see those coming through brokers. The one big difference
between what we’re seeing today versus the previous cycle is more
brokered business, but ultimately existing borrower relationships
can carry the day.
Lisa Pendergast. What percent of your origination volume comes
from pre-existing relationships with borrowers?
Clay Sublett.
From a ‘dollars-out-the-door’ perspective, it tends to
be the majority of what we do.
Larry Brown.
For Starwood, in the past four years we’ve done
over 400 loans for $5+ billion. The lion’s share is with repeat
clients from both the brokerage community as well as the direct-
borrower community.
Brian Furlong.
What we’re looking for in a borrower depends on
the total loan that’s involved, the all-in leverage, the loan term, etc.
If it’s a long-term loan, we might be more sensitive about certain
things, such as whether it is an active loan or passive loan in
terms of things that need to be done. We’re very sensitive about
construction lending given the heavy losses incurred cycle after
cycle compared to other types of lending. We try to lean in to the
very best sponsors. Same with bridge lending. The one thing that’s
different for us compared to commercial banks is that we have less
focus on relationship considerations external to the real estate
A Lender Roundtable: Real Talk from Real Lenders on Today’s Competitive Commercial and Multifamily Lending Environments
“We’re winning our share of the loans
we want to win but I think that any
good lenders lose the majority of the
loans they pursue.”
Larry Brown