Chicago, Illinois, March 1, 2017- The commercial mortgage lending industry held its annual conference (CREF) in San Diego this month with industry veterans remaining very bullish on the funding goals and objectives for this year.  In summary, an abundant supply of capital combined with conservative, yet competitive underwriting summarizes the state of the market.  Some of the key comments shared by lenders include the following:

► “We have more money than deals!”- Most funding sources have same allocation as last year. CMBS lenders expect to be very active, but only at profitability levels that accurately reflect risk retention.
► “For the right deal, we’ll win on pricing”- Life insurance companies clearly lead the industry as far as pricing, with the lowest spreads dipping below 130 basis points over the ten-year treasuries for lower leverage opportunities of 50% or less, for example.
► “Spreads just keep tightening”- Mortgage spreads over treasuries are narrowing, but intense pricing competition remains for lower leverage offerings. Typical loan pricing at 65% LTV fall comfortably below 200 bps.
► “75% LTV, but on my #s”- Some lenders concerned about peak pricing level use internal underwriting restrictions such as capitalization rates with floors. In these instances, leverage levels of 65% are “normal” and 70% or more is considered “high leverage.” Apartment still attract up to 80% LTV.
► “Can’t get enough apartments/industrials” – Capital sources demand more multifamily and industrial properties to balance out their portfolios as these are the two most favored categories. Apartments for cash flow stability and industrials for diversification.
► “Not just a one-trick pony”- In addition to balance sheet lending, life insurance companies are teaming up with private and public capital sources for placing debt and equity through fund management vehicles.
► “Gumby prepayments” – With rates close to record low levels, lenders compete by offering extremely flexible prepayment privileges for fixed and floating rate loans (e.g. yield-maintenance and declining balance instead of Defeasance).

John Oharenko, a director of The Real Estate Capital Institute®, observes, “Lenders are awash with cash, but still maintain funding discipline in light of regulatory oversight and industry oversight.  Even as rates stay low and leverage levels tighten, most lenders will still stretch for the ‘right’ deal.”