Northeast debt and equity market

Northeast debt and equity marketWithin the Boston market, increased competition from all sectors of lenders (commercial banks, CMBS, life companies, debt funds and bridge lenders) is creating an environment of modestly compressed spreads and leverage thresholds for non-recourse lending are beginning to tick upward. We are now seeing non-recourse construction financing on multifamily, office and luxury condominium development in isolated circumstances. Boston traditionally does not see a high volume of Class A, trophy assets trade and, therefore, lenders are increasingly becoming more aggressive on downtown Class B assets and stronger suburban markets. In 2014, we expect CMBS lenders to take a larger piece of the lending pie across all property types. We anticipate isolated instances of speculative lending as well.

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Northeast debt and equity marketLenders continue to rely on strong, proven sponsorship and focus on seasoned markets. In these instances, debt and equity are plentiful. Tertiary markets are continuing to be financed by local lenders. Debt capital remains strong and all indications are that it will remain so throughout 2014.

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Northeast debt and equity marketAs commercial lenders remain more conservative in terms of leverage levels, debt yield and location, CMBS is filling a needed void. The largest increase in CMBS originations are occurring in the stronger suburban markets. Leverage levels are typically in the 70-75 percent range. Increased competition is allowing for some structural flexibility and increased interest-only periods. More and more CMBS lenders are holding some structurally challenged assets on balance sheets for future conversion to securitization. On the positive side, CMBS allows for higher leverage debt in B-markets, typically up to 75 percent LTV and a 9 percent debt yield. However, on the flip side, more and firms are servicing their own loans; but there remains little flexibility as situations arise. The level of documentation and level of review by B-note buyers and rating agencies has created a more arduous closing process.

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Northeast debt and equity marketInstitutional capital (domestic and international) continues to focus on Boston based on its strong Education, Medical, Life Sciences and Innovation industries. More and more equity sources are searching for well-located luxury condominium opportunities given Boston’s near two-month supply of housing inventory. From 2012-2013, international investors, in particular, have invested $1.6 Billion in Boston, predominantly in the office sector. Switzerland, Norway, Canada and Germany have led the way.

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Jonathan SchneiderSenior Vice President Jones Lang LaSalle’s Capital MarketsJonathan.Schneider@am.jll.com+1 617 531 4119

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