Regency Capital Partners

Market Center

Capital Markets Update - Q2 2016

Regency Capital Partners closed Q1 2016 with a flurry of activity, ending the quarter with over $275 million in closed transactions. Despite much concern in the capital markets and a bit of softening in transaction volume, the trends we witnessed keep us very optimistic about the remainder of 2016. Notable examples include the following:

  • Non-recourse construction loans are still available. It is getting more difficult, but for quality sponsors and good locations, non-recourse construction financing is available and competitive. In Q1, RCP closed a $98,000,000 ground-up, spec construction loan in Sunnyvale for an institutional sponsor that was nearly 70% LTC and sub 5%. Additionally, our firm closed a 65% LTC non-recourse multifamily construction loan in Denver. Despite a concern of over-supply, lenders were able to understand the project’s unique, supply constrained submarket, along with the Sponsor’s deep experience, and stretch to meet the market.
  • CMBS is retrenching and settling down. After the rally that saw the 10-year AAA bonds tighten from T+165 to T+129, last week saw a slight widening up to about T+133. B-piece buyers and rating agencies continue to be conservative with originators subject to “haircuts” and “kickouts” for loans with perceived credit issues. “Vanilla” and low leverage loans are being priced aggressively with all-in rates under 5.00%. RCP closed a 75% LTC, Hispanic grocer portfolio in secondary and tertiary markets in Northern California. The transaction was challenging but closed, proving that despite the markets challenges, with solid CMBS platforms, even difficult deals are getting done.
  • Mezzanine debt is abundant and still relatively cheap. In Q1 2016, RCP closed over $40 million of preferred equity or mezzanine debt on two development deals. Both projects had 3-5 bidders and pricing, for both transactions, was in the low-teens, very aggressive given 85% leverage and the speculative nature of both placements. First mortgage lenders have proven the most challenging piece of the puzzle with new banking regulations (HVCRE) calling into question mezzanine debt and high leverage. We have found non-regulated construction lenders to be the most flexible and aggressive.
  • Life Companies are still a good cheap option and are getting creative. There are two notable lessons with life companies out of the first quarter. First, they are still cheap. Despite moving spreads, we are seeing lower leverage 5-year money just over 3% and 10-year money sub 4%. Secondly, we’ve seen the rise of several life companies, and “life company like” funds, filling the higher leverage void the market is missing. There are for well leased, quality assets, that need 65%-75% LTV, too high of leverage for the average life company but too quality of a deal to use CMBS. These lenders are priced between 25-50bps wide of traditional life company pricing. We are hoping to see more of these lenders enter the market in 2016.

We believe these trends will help make 2016 another good year though we believe we will all need to work harder and smarter to capitalize on these opportunities.


4:00 pm EST LAST
10-Year Treasury 2.170%
5-Year Treasury 1.703%
2-Year Treasury 1.165%
1-Month LIBOR 0.994%
3-Month LIBOR 1.158%
Fed Prime Rate 4.000%
2-Year Swap 1.535%
5-Year Swap 1.881%
10-Year Swap 2.205%