We assembled a panel of industry experts to tackle our recent roundtable question.
Here’s what they had to say.
Gretchen Wilcox, CEO and president, G.S. Wilcox & Co. (Morristown)
New Jersey continues to be one of the top markets for lenders located throughout the country. With its highly educated population and proximity to the ports and New York City, lenders will continue to be aggressive with their underwriting criteria when it comes to our state. In particular, the growth in construction, in particular conversions to Class A office space and new big-box warehouse, has seen the increasing emergence of alternative lending sources in our market. As the banks continue to pull back and the appetite for new projects remains strong, the number of debt funds will continue to increase which will lead to tightening spreads from more competition in the market. The wildcard for our industry in 2018 will be understanding the new tax laws and how they will impact our business.
Jeffrey Wolfer, CEO and president, Silver Arch Capital Partners (Hackensack)
As the commercial real estate market continues to evolve, many properties such as retail will continue to be repositioned. Banks and other traditional lending sources will continue to be hesitant to finance such transitional assets, especially to smaller real estate developers and investors. They just won’t want to buy in to the vision necessary to redevelop spaces and properties to fit the rapidly shifting market. This presents a great opportunity for private lenders such as Silver Arch Capital Partners to fund opportunities that fall outside of traditional lending perimeters.
Vincent Spero, executive vice president, head of commercial real estate, Peapack-Gladstone Bank (Bedminster)
Rising interest rates will reduce the amount clients can borrow and will affect cap rates and property values. Appraisals from a few years ago are already going down in value in the retail sector. As banks become more cautious about their CRE lending, along with regulator focus on CRE exposure, real estate professionals and developers may begin accessing capital through crowdfunding or private equity funds.
Retail strip malls will become obsolete. Medical retail with walk-in clinics and urgent care facilities are trending, but lending to these concepts is challenging. Ecommerce will take market share and Amazon will continue to impact the entire retail sector.
With respect to demographic shifts, aging boomers will drive up demand for senior housing and medical office buildings, which will provide lending opportunities for banks. However, the experiential retail lifestyle preferences of millennials, such as healthy food and entertainment, will challenge all sectors of the CRE industry and test lenders that fear lending to restaurants and entertainment sectors.
Marvin Jeremias, managing director, Meridian Capital Group (Iselin)
In the years to come, we should start to see cap rates, which have remained at low levels for the past five years, start to move up. This is explained by the recent rise in treasury yields influencing the interest rates charged by lenders upward. As a result, lenders will become more conservative with their underwriting and proceeds levels. This constriction of loan dollars will mandate that cap rates expand to make new purchases pencil out.
