Commercial Real Estate Capital Markets From a Regional Bank’s Perspective
I attended a seminar last week sponsored by the Columbus Board of Realtors with one of our largest regional banks, and I want to disseminate some of what I heard. Banks once again have production goals, so that could benefit you , the investor or owner user, IF you fit their profile. Huntington Bank as in most other local or regional banks are interested in holistic relationships with borrowers. That means that they are not interested in lending just their balance sheet to the borrower, but want to see a two way long term banking relationship. If you intend to be an owner user, even better. Most banks will want your depository relationship so if you have a long term good relationship with your current bank, you’re much better off to start there.
The focus was mainly on the Columbus / Central Ohio market, but keep in mind that Huntington is a large Midwest regional bank so what they said applies to many Midwest markets. I’m going to upload the handout we received and it will be linked at the bottom of this post.
I’m going to quickly summarize the major points of the program.
Vacancy rates are falling across all product types lead by multifamily residential. Apartments have experienced the steepest declines due to the far more restrictive lender requirement for residential mortgage financing causing vacancy rates to drop below 5% overall. This makes this landlord’s market and will lead to increased rents. This will of course lead to an increase in construction capital in this sector and will make new construction of apartment projects feasible, which will introduce more supply into the market until the market is over built. That is the way the market churns, and one factor we will never have is equilibrium in a market. We’ve been here many times before and there’s no reason it will ever change.
Cap Rates are compressed on multifamily to cycle lows and they’re steady to falling slightly on other product types. Also very strong is the national credit, corporate leased, triple or absolute net, single tenant retail. The net leased, single tenant retail is trading at caps that I don’t think I’ve seen before in this market or many other markets with which I’m familiar. Multi tenant retail with non-credit tenants are still languishing on the market. Eventually, caps will fall far enough on the triple net, credit tenant retail that it will start to pull some of this other product up with it, even in secondary and tertiary markets.
I’ll stop now and provide the link to the 15 pages of the program I attended last week. If you have any questions, feel free to contact me, Scott Harris at 310-473-4789 or 614-905-6614.