Wednesday, November 13, 2013
The Cranes of Miami
Summary: From the Calculated Risk blog, cranes in Miami evidencing development.
http://www.calculatedriskblog.com/2013/11/the-cranes-of-miami.html
http://www.calculatedriskblog.com/2013/11/the-cranes-of-miami.html
Multifamily Boom Slows
The multifamily industry is on an ascending path, with trendlines pointing to a steady, albeit slow, recovery of the housing market all throughout the U.S metro areas.
The construction pipeline remains active in most markets, with 1,400 properties, 316,010 units, currently under construction, according to the latest data from Pierce-Eislen. The company’s services monitor the 50+ unit apartment universe from the property level to the submarket/market level within 59 United States markets, extending in geography from the Pacific Northwest to the Mid-Atlantic.
Denver, L.A. Metro, Seattle and the Carolina Triangle lead the charts in terms of new apartment development, followed closely by Washington D.C., Northern Virginia, Urban Boston, and three of Texas’s economic hubs, North Dallas, Austin and West Houston.
Common Characteristics
Pierce-Eislen research shows that more than 90 percent of the units under construction possess two characteristics in common: the developments are located in urban environments, and they are positioned so as to serve the two, “renters-by-choice” lifestyle rental categories: wealthy empty nesters (55+), and young professional, double-income-no-kids-households.
The capital source, lender, developer, investor universe all seem to point to the same conclusion: urban, cutting-edge development, fully dressed up, with all the amenities is the one configuration that actually works in the current economic context.
On the other hand, when conducting quarterly comparisons of market data, the apartment industry conditions seem to be weakening. All four indexes of the National Multi Housing Council’s (NMHC) October Survey of Apartment Market Conditions dropped below 50 for the first time since July 2009. Market Tightness (46), Sales Volume (46), Equity Financing (39) and Debt Financing (41) all showed declining conditions from the previous quarter.
“After four years of almost continuous improvement across all indicators, apartment markets have taken a small step back,” said Mark Obrinsky, NMHC’s Vice President of Research and Chief Economist, in a statement. “Conditions cannot continue to improve indefinitely and new development is at least somewhat constrained by available capital – though more on the equity than the debt side. Even so, both the Market Tightness and Sales Volume Index are within hailing distance of the breakeven level and the Debt Financing Index rose despite some rise in interest rates. This bodes well for the apartment industry going forward.”
Key findings of the NMHC survey include:
Mixed sentiments regarding the availability of capital for new development. More than three quarters of the respondents regarded construction debt financing as widely available – 34 percent think both equity and debt financing are widely available, while 43 percent think construction loans are widely available but equity capital for new development is constrained. Only 36 percent think equity capital is widely available.
Market Tightness Index fell to 46 from 55. Conditions vary greatly from place to place, but on balance, most respondents (67 percent) said they saw no change in market tightness (higher rents and/or occupancy rates) compared with three months ago. One-fifth of respondents felt that markets were looser than three months ago, while 13 percent saw tighter markets.
The Sales Volume Index remained at 46. Almost one-third (32 percent) of respondents saw a lower number of property sales, compared with almost one-quarter (24 percent) who said sales volume was unchanged. A plurality of 44 percent regarded sales volume as unchanged.
The Equity Financing Index dipped to 39. Sixty percent viewed equity financing as unchanged – this was the tenth consecutive quarter in which the most common response was that equity finance conditions were unchanged from three months ago. By comparison, 27 percent of respondents viewed conditions as less available and only 5 percent viewed equity financing as more available.
Debt Financing Index rose 21 points to 41. Almost one quarter of respondents (22 percent) viewed conditions as better from three months ago, a sizable increase from eight percent last quarter. Forty-one percent of respondents believed now is a worse time to borrow, down from 67 percent in July.
The survey was conducted October 7-October 16 and included the responses of 64 CEOs and other senior executives of apartment-related firms nationwide.
Need a corporate loan? Forget your bank - tap the shadow banking system instead
New York --(SoberLook.com)--
Here is a simple question: what percentage of US banks' balance sheets is taken up by loans to businesses? The answer may surprise some. It's just under 11.5%, down from about 16% some 10 years back. Banks began preferring real estate loans (particularly commercial real estate) to corporate credit in the early part of last decade. That didn't work out so well (see post). Since the financial crisis, banks' deleveraging sent the number to new lows. The percentage began to rise in 2011 but has stalled again this year.
The result of Basel-based regulation has been the reliance on corporate ratings for capital requirements. Loans of companies without a strong rating or with no rating at all require significantly more capital to hold on balance sheets. And loans to companies with strong ratings pay such a low rate these days, it eats into banks' profitability. This is especially true for the middle market and lower middle market companies. Outside of basic inventory, equipment, and receivables financing (mostly short-term), banks remain cautious.
It doesn't mean however that credit to companies is not available. In fact multiple lenders have been stepping into banks' domain. BDCs, CLOs, credit/mezzanine funds, bond/loan retail funds, etc. have been providing credit to businesses in the US. That transformation to non-bank lenders over the past decade has been quite spectacular - especially in the middle market.
When you hear all the pundits talk about "shadow banking", they usually miss the fact that most corporate loans now come from outside the banking system. So the next time your medium-sized business needs some long-term financing, you may get a better answer from your not-so-local BDC than your local bank - particularly while credit markets remain hot.
Here is a simple question: what percentage of US banks' balance sheets is taken up by loans to businesses? The answer may surprise some. It's just under 11.5%, down from about 16% some 10 years back. Banks began preferring real estate loans (particularly commercial real estate) to corporate credit in the early part of last decade. That didn't work out so well (see post). Since the financial crisis, banks' deleveraging sent the number to new lows. The percentage began to rise in 2011 but has stalled again this year.
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| Source: FRED |
It doesn't mean however that credit to companies is not available. In fact multiple lenders have been stepping into banks' domain. BDCs, CLOs, credit/mezzanine funds, bond/loan retail funds, etc. have been providing credit to businesses in the US. That transformation to non-bank lenders over the past decade has been quite spectacular - especially in the middle market.
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| Source: Aranca (click to enlarge) |
Tuesday, November 12, 2013
Kroll Bond Rating Agency’s Structured Finance Investor Forum Featuring Paul Volcker
New York --(Fort Mills Times)--
Kroll Bond Rating Agency held a Structured Finance Investor Forum on November 7, 2013. The event was attended by more than 50 participants, which included buy and hold and total return investors representing firms with portfolio holdings across the capital stack. Opening remarks were made by Jim Nadler, President, and Jules Kroll, CEO, followed by keynote speaker Paul Volcker, former Chairman of the Federal Reserve, who addressed the attendees on the current state of the capital markets and regulation.
The Forum included two break-out sessions that offered interactive dialogue with investors. The first, focused on CMBS, was led by Kim Diamond, who heads KBRA’s Structured Finance effort. Ms. Diamond posed questions to the panelists, members of KBRA’s senior CMBS team, and the audience, to gauge their overall views on the economy and current credit conditions. The audience believed that credit spreads would tighten over the course of the next year as issuance increases to post financial crises highs, as the economy continues along at its current pace or improves. Panelists and investors agreed that credit poses the biggest risk for the CMBS market.
The RMBS breakout session, led by Senior Managing Director Glenn Costello, discussed the state of the RMBS market and REO-to-rental assets. Specific topics included recent collateral trends, Qualified Mortgages (“QM”) and the potential for non-QM transactions in 2014, reps and warranties, home prices, and single-family rental securitizations, in particular the Invitation Homes 2013-SFR1 transaction.
Kroll Bond Rating Agency held a Structured Finance Investor Forum on November 7, 2013. The event was attended by more than 50 participants, which included buy and hold and total return investors representing firms with portfolio holdings across the capital stack. Opening remarks were made by Jim Nadler, President, and Jules Kroll, CEO, followed by keynote speaker Paul Volcker, former Chairman of the Federal Reserve, who addressed the attendees on the current state of the capital markets and regulation.
The Forum included two break-out sessions that offered interactive dialogue with investors. The first, focused on CMBS, was led by Kim Diamond, who heads KBRA’s Structured Finance effort. Ms. Diamond posed questions to the panelists, members of KBRA’s senior CMBS team, and the audience, to gauge their overall views on the economy and current credit conditions. The audience believed that credit spreads would tighten over the course of the next year as issuance increases to post financial crises highs, as the economy continues along at its current pace or improves. Panelists and investors agreed that credit poses the biggest risk for the CMBS market.
The RMBS breakout session, led by Senior Managing Director Glenn Costello, discussed the state of the RMBS market and REO-to-rental assets. Specific topics included recent collateral trends, Qualified Mortgages (“QM”) and the potential for non-QM transactions in 2014, reps and warranties, home prices, and single-family rental securitizations, in particular the Invitation Homes 2013-SFR1 transaction.
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