Strong Lender Appetite for New Originations Holds Steady in Q4; Low Interest Rates and Favorable Terms Offset Compressing Cap Rates and Rising Prices in Strong Investment Market
San Francisco, Calif. – Gantry, the largest independent commercial mortgage banking firm in the U.S., has completed $3.62 billion of new commercial mortgage placements during the first three quarters of 2021, including $1.5 billion in Q3 2021. Lenders are expected to remain active and competitive in the fourth quarter, with expectations that Gantry will well approach $5 billion in production by year end. Production totals reflect a highly favorable lending environment for borrowers and a strong appetite from Gantry’s lenders for placing favorable debt on qualified commercial real estate assets.
“Although the potential for rising rates exists moving into 2022, we have yet to see a significant shift materialize in the lending environment and so, we continue to remind borrowers we remain in what can only be characterized as a generationally favorable financing climate,” said Michael Heagerty, CFO and Principal with Gantry. “This climate is providing qualifying commercial real estate investors attractive options to refinance or acquire properties. While the investment market remains heated with the abundance of capital competing for assets compressing cap rates and increasing valuations, the right tailored debt solution has become more critical than ever. Life company and CMBS lenders remain particularly active in the low to moderate leverage market providing historically low rates and are offering favorable terms including generous prepayment options and interest only payments.”
In terms of total capital allocations, 2021 originations are defined as follows (ranked in descending order):
Asset Class: Multifamily, industrial, office, retail, mixed use, and self-storage.
Loan Volumes: Life companies, banks, agencies, CMBS and credit unions as top funding sources.
Loan Values: Life companies, banks, agencies, CMBS, and credit unions for total loan values.
Notable trends in relevant Gantry verticals include:
Production
Gantry originated a total of 118 unique loans in Q3 and 359 since the beginning of the year. Life company, CMBS and GSA lenders remain extremely active and are often the preferred source for long-term debt. Banks and credit unions remain an attractive source for mid-term loan structures and continue to be a primary source for construction financing. Additionally, life companies have moved into the bridge lending space, competing with debt funds and alternative lenders, for properties in transition or pursuing stabilization.
Key trends to consider from Gantry’s first three quarters of 2021 production totals include:
As cap rates compress and asset values rise, generationally low interest rates and borrower friendly terms including full-term interest only will provide significant cash flow enhancements for borrowers.
Life company lenders continue to reward low leverage sponsors by financing assets when LTV/LTC are in the 50s, offering very favorable terms for both new acquisitions and refinances.
CMBS lenders are an active and increasingly appealing lending source for legacy hold borrowers seeking to finance at higher leverage points.
Banks and credit unions remain competitive on rate and proceeds, and for construction financing.
Lenders, some seeking to make up for lost time during 2020, remain active in the market with aggressive pricing to win new business and lenders have already indicated that the trend will continue through year end and into 2022.
Servicing
Gantry, a long-rated Primary Servicer by Standard & Poor’s, continues to see near 100% of expected performance from its more than $17 billion portfolio of serviced commercial mortgages spanning more than 2,000 loans in 43 states. These loans represent financings in every asset class, including hospitality which remains the most challenged asset class post-pandemic. While lenders continue to shy away from hospitality and many office property types, Gantry continues to see performance from its servicing portfolio loans in these asset categories. Gantry expects to see a continued trend of asset performance for the foreseeable future as the economy and asset performance continues to stabilize post COVID.
Culture
Gantry recently moved into its new Portland creative office, which it did a full design/build for. The new office houses its loan production, servicing and closing teams in Portland’s “Slabtown” district. Located between the Pearl and Nob Hill neighborhoods, Slabtown is a unique mix of residential and industrial buildings with walkable streets, plentiful shopping, coffee shops, restaurants and art galleries. The decision to identify, design and open this office for the Oregon production team followed Gantry’s acquisition of the commercial mortgage banking unit of Norris, Beggs & Simpson at the end of 2019. The office opening represents a commitment from Gantry to return to in-office operations across its operating locations by 2022, in harmony with guidance from local jurisdictions in the community of each production office.