John Nicolini, a managing director and senior consultant with Verus, sees no signs that the real estate lending market is declining. “Lots of capital is still chasing deals from insurance, banks and private capital, he said, adding that “It will likely take a valuation incident to scare debt capital from the markets.”
Nicolini, who is based in Verus’ San Francisco office, will participate in a panel discussion on real estate debt strategies at a forthcoming Markets Group real estate forum—the 4th Annual Midwest Institutional Real Estate Forum in Chicago, September 25—responded via email to questions from IA regarding his outlook on the real estate debt market.
When asked what are some of the effects on the RE debt market of the evolving balance between bank and non-bank lending? Nicolini said: “There has been some regulatory relief with banks allowing them to reenter the lending market. I suspect banks will still occupy the least risky end of the lending market in real estate. So, that will likely push non-banks to lend to riskier projects. Competition is very high for senior loans on core/core-plus assets so non-bank lenders are struggling to put money to work in that area of the market which, again, has them taking riskier positions in mezzanine or bridge financing loans.”
And with interest rate hikes expected, how are lenders and borrowers approaching interest rate risk mitigation within their financing strategies? “I believe the markets view is that interest rate hikes at this stage are unlikely,” Nicolini responded. “Rate cuts are being priced into the market in the second half of 2019. So additional hikes seem like a non-issue for now.”