From left: Peter Gordon of Alliance Bernstein, Kurt Stuart of JPMorgan Chase & Co., A.J. Sfarra of Wells Fargo Securities LLC and Justin Levitt of PGIM Real Estate Finance were among the panelists at the Rutgers Center for Real Estate’s second annual Capital Allocation Conference at the Hyatt Regency Jersey City. — Photo by Fred Stucker/Courtesy: Rutgers
By Joshua Burd
For a market that is seeing an extended growth period, it isn’t all that complicated to sum up what exactly is driving the major trends in commercial real estate lending:
At least, that’s according to panelists at a recent conference hosted by the Rutgers Center for Real Estate, where lenders and other experts gathered to discuss the state of commercial real estate finance in New Jersey and beyond.
“The trends are all driven by fierce competition,” said A.J. Sfarra, managing director with Wells Fargo Securities LLC. “From our vantage point and from a capital markets perspective, fierce competition is driving everything from pricing to leverage to loan structure.”
Sfarra was joined by other lenders during one of two panel discussions at the center’s second annual Capital Allocation Conference, which took place in mid-April at the Hyatt Regency Jersey City. Moderated by Gretchen Wilcox, CEO and president of G.S. Wilcox & Co., the panel touched on everything from the impact of federal tax reform to the asset classes that continue to be most attractive to banks, life insurance companies and other lending sources.
As Wilcox noted, “there’s a lot more money than there are deals to finance right now.” That prompted her to ask the panelists how they try to win deals and differentiate themselves from their competition.
Kurt Stuart, east market manager for JPMorgan Chase & Co., said the banking giant does so by “focusing on two fundamentals that, frankly, haven’t changed all that much through the years.”
“It’s speed and certainty of execution and client experience,” said Stuart, who noted that JPMorgan is focused on stabilized multifamily properties. “Those two fundamentals are a big piece of that, so we invest a lot in technology so that we can augment our process to be quite a bit faster than some of our competitors, quite a bit easier than some of our competitors.
“We’ve got a pretty tight credit space, but what we’re able to do in that credit space is pretty significant. So from a speed perspective, for example, we’re able to do things in probably half the amount of time that some of our competitors can.”
Both Justin Levitt of PGIM Real Estate Finance and Peter Gordon of Alliance Bernstein also pointed to the importance of relationships, which is often cited by commercial real estate executives. But Gordon, a managing director with his firm, said it was more than just a buzzword, noting that borrowers who have a history with a particular lender “are going to look to you in a jumbled situation” when trying to choose from several comparable options.
When it comes to deciding which loans to compete for, Levitt said lenders look at factors such as stability of cash flow during a loan term and their ability to exit at the end of the term. Today, they are weighing those factors against a backdrop of longer interest-only periods, rising interest rates and questions about rent growth in the market’s top asset classes.
For instance, Levitt said those questions are very much in play when it comes to New Jersey’s surging industrial sector. Lenders with PGIM are still “very bullish” on warehouse and logistics property in the state, he said, but are keeping a close eye on rent growth going forward, especially in submarkets such as Newark and the Meadowlands that have seen rates skyrockets to unprecedented levels over the past two years.
“We want to make sure that still has room to run,” said Levitt, a director with PGIM. “I’m not sure how much it does, but I don’t know if anybody really does. But I think the last mile around New York City is kind of here to stay and I think that New Jersey industrial is really here to stay because it’s driven by New York City.”