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San Diego
Wednesday, May 22, 2024
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Active Lending Helps Fuel Interest in Commercial Property

Meeting recently in San Diego for the Mortgage Bankers Association’s annual commercial real estate financing conference, experts were bullish on national prospects for commercial and multifamily lending.

The Washington, D.C.-based trade group’s economists are projecting that nationwide originations for commercial property and apartment-related mortgages will reach $254 billion this year, up 11 percent from 2012.

In markets including San Diego County, investors are looking to lock in low interest rates, and on the financing side are finding a host of backers to acquire a limited number of desirable properties.

Among those attending the national conference at Manchester Grand Hyatt was Timothy Wright, senior managing director in the San Diego office of capital services firm Holliday Fenoglio Fowler LP, also known as HFF.

Wright said commercial acquisition financing — for office, industrial and retail properties — is likely to remain strong this year locally and nationally. Several types of entities see commercial real estate as a key driver of their investment returns for the foreseeable future, including insurance companies, traditional banks, and other financers involved with bundled loans known as commercial mortgage-backed securities, or CMBS.

In some cases, the lenders view whole-loan financing in the commercial property sector as a higher-yielding alternative to investments like corporate bonds. With vacancies dropping, rents rising and property values increasing, the local region is seen as relatively stable.

San Diego County has barriers to new construction and other elements that lessen the chance of over-building, compared with other major metro areas. “Lenders generally regard San Diego as being a supply-constrained, attractive market,” Wright said.

The Most Active Players

Government-sponsored financing enterprises, such as Fannie Mae and Freddie Mac, remain the most active players in the multifamily market. Fannie Mae recently reported that it originated $33.8 billion in multifamily property financings nationwide in 2012, up 38 percent from the prior year and the agency’s highest level of lending since 2008, when financings reached $35.5 billion.

In San Diego County, numerous private investors have recently been vying to acquire a limited number of apartment properties going up for sale, aided by government-backed enterprise financing but also finding financers among insurance companies, private equity firms, pension funds and other institutional investors.

“In San Diego it’s more a matter of supply, it’s not a matter of financing,” said Darcy Miramontes, executive vice president in the San Diego office of brokerage firm Jones Lang LaSalle, who did not attend the conference.

The San Diego market recently ranked sixth in the annual ranking of the nation’s top apartment investment markets, by the brokerage firm Marcus & Millichap. Researchers gauged the strength of major metro regions’ apartment markets, based on factors including supply and demand, new construction, employment and other economic growth.

Diverse Economies

In sectors such as life sciences, technology and energy, property financing continues to be drawn to regions with diverse economies, where the office buildings have a stable base of national and global tenants. Lynn LaChapelle, managing director of capital services in JLL’s San Diego office, said that generally applies to San Diego and the rest of Southern California, as well as Texas markets including Houston and Dallas.

In areas like health care, federal government agencies such as the Federal Housing Administration — overseen by the U.S. Department of Housing and Urban Development, or HUD — are seeing increased lender involvement in programs aimed at increasing the supply of up-to-date hospitals and other care facilities.

“It’s helping to bring down the cost of health care,” said Roger Miller, HUD’s deputy assistant secretary of health care programs, during a session at the local conference.

For instance, Miller said HUD’s national Section 232 program, where qualified lenders provide financing for development and renovation of health care facilities, was backing more than $600 million in ongoing projects at the end of 2012, creating more than 5,700 construction jobs nationwide.

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