19th Annual Western States CREF Conference Takeaways

September 21, 2016

The 19th annual California Mortgage Bankers Association Western States CREF Conference took place September 7th through 9th 2016 at the Wynn Las Vegas in Las Vegas Nevada. Below are my 5 largest takeaways from the three day conference.

1. Attendance was high, the real estate and lending markets are strong

This year’s western states CREF conference was well attended and spirits were high, with over 700 people in attendance for the 2016 conference.  Lenders as a whole seem to be expanding and are looking to repeat or increase total loan production in 2017.

2. There is a shake up underway with the CMBS market due to looming risk retention regulation going into effect before the end of the year

The CMBS market is in a time of uncertainty.  Rates are low but new regulation is coming and lenders are trying to adapt. There are new financial oversight regulations set to go into effect December 24th. These changes will require lenders originating CMBS loans to hold a 5% slice of each CMBS deal. Many lenders are still unsure if this will cause an increase in pricing and how this will affect the loan process behind the scenes. There is a fear that this change will require a higher spread and make CMBS loans less competitive with other lending alternatives.

Most people agree that there will be a significant decrease in the number of CMBS lenders who stay in the market with the new retention regulation.  There are currently about 40 CMBS lenders and many industry insiders believe we will end up with between 10 to 15 lenders remaining once the dust settles early next year. The general belief is large banks and other lenders who have the balance sheet and are able to hold the 5% risk retention slice required by the new regulation, will be the only lenders remaining. This will put numerous smaller players out of the market. It was very noticeable that there were fewer CMBS lenders in attendance at the conference. This will continue to be a developing story over the next 3-6 months.

Aiding the CMBS market and remaining lenders is that current lending rates are still low and are very competitive with banks and life insurance companies. Rates are in the high 3% and low 4% interest range and interest only loans still available. Stability has returned after a very volatile first half of the year.

3. Banks are less aggressive than they have been over the past 12-24 months but still very active in the market

There appears to be a more conservative approach to bank underwriting compared to the past 12 to 24 months. In 2015 and the first half of 2016 banks were very aggressive and pushed many underwriting standards to create very high loan production levels. These banks were able to capitalize on very low treasury rates and volatility in the CMBS market. Many bank lenders are now emphasizing they are sticking to (or returning to) underwriting fundamentals and looking to place more conservative loans moving forward. Lenders are scaling back their construction programs and other higher risk loan programs. Construction loans are moving away from banks to higher priced debt funds and other lenders filling the gap at higher interest rates.

4. Life insurance companies are having all time high years in terms of loan dollars and expect next year to surpass this year

Life insurance companies are having all time record years in terms of the total dollars closed. Many I spoke to are ahead of schedule and may exceed their 2016 target and they expect their allocation to rise in 2017. There is a very healthy outlook among life insurance companies who are looking to close more loans.

5. There is a general consensus that the market is still very strong

The overall market is strong, and rates are still hovering near all time lows. There is a distinct optimism that the market will continue to be strong end of 2016 and into 2017 as well. People are hesitant to discuss how similar the past 2 years appear to be compared to 2006 and 2007 in terms of loan growth and loan dollars lent. People seem to prefer to look forward to the fantastic low rate environment that many expect to continue with government stimulus and record low interest rates around the world.

We are looking forward to seeing you at next year’s Western States CREF Conference! Between now and then, please contact us for any commercial real estate financing needs.

written by:

Jeff Matlock
Commercial Mortgage Banker