CBRE LENDERS SURVEY LOOKING AT 2015 LENDING TRENDS IN CANADA FINANCING DEBT COMMERCIAL REAL ESTATE BOND TERM DEBT YIELDS MORTGAGE ACQUISITION

Transcription

1 CBRE LENDERS SURVEY LOOKING AT 2015 LENDING TRENDS IN CANADA COMMERCIAL REAL ESTATE DEBT FINANCING TERM DEBT YIELDS MORTGAGE ACQUISITION REFINANCING BOND INTEREST RATE

2 ABOUT CBRE CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world s largest commercial real estate services and investment firm (in terms of 2013 revenue). The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through approximately 350 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at In Canada, CBRE Limited employs approximately 2,025 people in 23 locations from coast to coast. Please visit our website at CBRE CAPITAL MARKETS CBRE Capital Markets comprises two seamlessly integrated, complementary services: the disposition and acquisition of institutional and investment properties for owners and investors, and the placement of Debt & Structured Finance. Capital Markets can respond to the full spectrum of real estate investment requirements by offering services designed specifically to meet the client s expectation and needs. Our teams were created to service each client in every sector across all markets. DEBT & STRUCTURED FINANCE With 26.9 billion of closed loan originations in North America since 2013, our team of skilled professionals is uniquely positioned to provide financing solutions by leveraging their invaluable collective experience and relationships with key institutional and private capital sources. The Canadian Debt & Structured Finance operation is an integral part of our extensive North American platform. In addition to working seamlessly with the Capital Markets professionals, Debt & Structured Finance acts as a trusted advisor providing innovative financing solutions to real estate investors. 2 CBRE Capital Markets, Debt & Structured Finance CBRE Limited 2014

3 INTRODUCTION CBRE s Annual Lenders Survey was carried out between October 15th and October 31st, 2014, from a wide range of Lenders active in Canada. The survey posed many important questions that Canadian Lenders are facing, and will continue to do so in an ever-changing economic landscape. This report will provide insight to the key drivers that are crucial to Canadian Lenders in the loan approval process. Forward guidance for providing debt capital to the Commercial Real Estate (CRE) sector in the future can also be gleaned from this report. CBRE Capital Markets, Debt & Structured Finance has always strived to promote the increased efficiency and growth of the Commercial Real Estate industry in Canada, by engaging with stakeholders in the debt capital markets. In this spirit, it is our pleasure to publish our first Annual Lenders Survey and we hope that you will benefit from the information contained in this report. All the information collected has been kept confidential and only aggregate numbers and averages were included in our analysis; no single respondents answers were revealed. EXECUTIVE SUMMARY Canada s lending market can be characterized by a high degree of supply, with most lenders holding underwriting standards more or less the same, while being competitive on pricing. This largely bullish scenario appears unlikely to change in 2015, with most lenders indicating their respective loan books would increase. Lenders appear to have a healthy appetite for all the main property types and are willing to lend in most regions of the country. Perhaps surprisingly, respondents stated a willingness to lend on land and construction, a sector that inherently carries more risk but speaks to the high degree of confidence most lenders have in the Canadian CRE marketplace. CBRE Capital Markets, Debt & Structured Finance CBRE Limited

4 PARTICIPANT PROFILE /i How would you classify yourself as a lender? With a total of 41 respondents to the lender survey, they classified themselves as follows: 22 Other 20 Bank 2 Government Agency 2 CMBS 10 Syndicated Lender 2 Pension Fund 10 Credit Union/Trust Company 32 Life Insurance Company /ii What size segment of the market do you mostly service (single loan size amount)? Lenders indicated they would lend to both larger projects of 25.0 million and greater (44), and smaller projects between 5.0 million to 15.0 million (29). /iii Average loan volume/ allocation in a typical year (new loans and renewals). With 50 of respondents having annual average loan volumes of million to above 1.0 billion, lenders are very active in the debt capital markets in Canada. 4 CBRE Capital Markets, Debt & Structured Finance CBRE Limited 2014

5 DEMAND /01 Apart from normal seasonal variation, how has demand for CRE loans changed over the past six months? /02 Are you active in construction and land development loans? No Yes Somewhat Weaker No Change Somewhat Stronger Considerably Stronger Considerably Weaker /03 How has demand for construction and land development loans changed over the past six months? 43 No Change 36 Somewhat Stronger 15 Somewhat Weaker 6 Considerably Stronger 0 Considerably Weaker Demand Highlights Largest response indicated demand was somewhat weaker (34), with a further 8 stating demand was considerably weaker; however, 21 saw demand being somewhat stronger, and 8 stating it to be considerably stronger. In addition to offering loans for stand-alone investments, a fair number of respondents are providing financing for construction and land development (55). Most respondents indicated demand for land and construction loans were little changed; however, the balance felt interest in land and construction loans were somewhat stronger (36), with a further 6 indicating considerably stronger. CBRE Capital Markets, Debt & Structured Finance CBRE Limited

6 SUPPLY /04 Based on your knowledge of your company s current loan book, which of the following best describes your financial institution s appetite towards real estate lending in future? Increase Allocation Maintain Allocation Decrease Allocation /05 How much new capital are you planning on lending in real estate in 2015 (including refinanced capital)? /06 Please rate your appetite to lend outside of Canada s six major metropolitan areas (Vancouver, Edmonton, Calgary, Toronto, Ottawa, and Montreal) Million - 1 Billion Between Million Greater than 1 Billion Between Million 9 Under 100 Million 3 None Moderate Deal Specific Strong Weak Very Strong Very Weak No Interest 6 CBRE Capital Markets, Debt & Structured Finance CBRE Limited 2014

7 SUPPLY /07 Is your organization open to new borrower relationships? No Yes 6 94 /08 Do you offer Interest Only (I/O) as part of your loan structure offering? No Yes 22 Supply Highlights A positive response of 56 indicated that they would be looking to increase their allocation to CRE loans. Collectively, Lenders are set to increase their allocation to debt financing. Much of the lending occurs in Canada s largest metropolitan areas; interestingly, most lenders have either moderate (43) or good interest (20) in Canada s smaller metropolitan locations. Perhaps surprising to some market participants, interest only loans are available from over three quarters of respondents. 78 CBRE Capital Markets, Debt & Structured Finance CBRE Limited

8 UNDERWRITING /09 Which of the following real estate classes do you favor most for existing assets. (Please rank them from 1 to 6; 1 being the asset class you favor the most) *Indexed Residential Industrial Retail Office Seniors Housing Hotel *Based on index where each rank was provided a multiple for respective importance: rank 1 = 5x, rank 2 = 4x, rank 3 = 3x, rank 4 = 2x, rank 5 = 1x, rank 6 = 0x /10 Over the past six months, how has your organization s credit standards for approving applications for CRE loans changed? Unchanged 72 Tightened Slightly 18 Eased Slightly (less restrictive) 8 Tightened Measurably (more restrictive) 2 Eased Measurably 0 8 CBRE Capital Markets, Debt & Structured Finance CBRE Limited 2014

9 UNDERWRITING /11 Do you require recourse? No Yes Partial n/a /12 Over the past six months, how has your organization changed the following terms and conditions on loans to borrowers? Unchanged Eased Slightly Tightened Slightly Tightened Measurably Eased Measurably Underwriting Highlights Lenders have a strong interest in Residential, followed closely by Industrial, Retail and Office. Respondents appear to be comfortable with existing standards, with 72 stating that their credit requirements had not changed. While non-recourse loans are starting to be more common, the majority of Lenders still require recourse. Respondents stated that term conditions remained unchanged (32) or eased slightly (29) over the past six months. CBRE Capital Markets, Debt & Structured Finance CBRE Limited

10 PRICING /13 What is the required minimum spread over 10-yr Government of Canada (GoC) bond (for stabilized, wellperforming asset in tier-1 market with strong sponsor)? Lower than 150 bps bps bps bps More than 300 bps /14 What is the required minimum spread over 5-yr Government of Canada (GoC) bond (for stabilized, wellperforming asset in tier-1 market with strong sponsor)? Lower than 150 bps bps bps bps More than 300 bps 10 CBRE Capital Markets, Debt & Structured Finance CBRE Limited 2014

11 PRICING /15 What is the maximum Loan-to-Value (LTV) you would consider (for stabilized, well-performing asset in tier- 1 market with strong sponsor)? Less than or equal to More than 95 Pricing Highlights Most respondents need to achieve a spread of basis points (bps) over 10-yr GoC bonds (57), with some respondent requiring more (29). Spread requirements for the 5-yr GoC are similar to the 10-yr GoC with the majority in the bps (70) and a few requiring bps (22). The LTV for loans would have to be between the band for lenders (61), while it should be noted that 22 of respondents are willing to accept a band. Highlighting the conservative nature of the Canadian lending market, most (61) lenders are only willing to lend up to a maximum of 75; however, a smaller group (22) are prepared to go as high as 85. CBRE s first Annual Lenders Survey should provide a good barometer for the outlook of debt financing within the Canadian CRE sector. In light of a prolonged low interest rate environment, Canadian Lenders indicated a healthy appetite to increase their loan allocations in 2015, with a view to rely not only on existing relationships but to foster new ones that should result in increased loan volumes. Although Lenders saw slightly softer demand in recent months for CRE loans, most are maintaining a positive stance by indicating they would provide new and refinanced capital in the upcoming year that would create ample liquidity in the marketplace. A surprising result was Lenders narrowly favored Residential over Industrial as an asset class by a very narrow margin, which is a strong indicator that the Industrial asset class is not only growing in prominence but also seen as an important part of their loan portfolio. This lends to the fact Industrial assets tend to close fairly quickly and seem to be in constant demand by users; although, environmental issues can sometimes delay this highly coveted asset class. Lenders have generally not tightened their credit requirements and are not expected to do so in the coming months. This supports the outlook that Lenders believe the Canadian CRE market to be mostly stable and healthy. The LTV requirement stayed consistent with the conservative nature of most Canadian Lenders with debt levels at, or below 75, but some lenders stated a willingness to issue loans with an LTV ratio of 85. Based on the results of this survey, the outlook of debt financing for the Canadian marketplace is highly positive. We take this opportunity to thank all the participants for their valuable input. CBRE Capital Markets, Debt & Structured Finance CBRE Limited

12 CBRE CAPITAL MARKETS DEBT & STRUCTURED FINANCE LEADERSHIP Peter D. Senst* President Canadian Capital Markets T peter.senst@cbre.com Alexandre Sieber Senior Vice President & Senior Managing Director T alexandre.sieber@cbre.com RESEARCH Ross Moore Director of Research, Canada T ross.moore@cbre.com PROFESSIONALS Andrew Odd 1 Senior Vice President T andrew.odd@cbre.com License # M Ed Fitzpatrick 4 Vice President T ed.fitzpatrick@cbre.com License # Lekan Temidire Research Analyst T lekan.temidire@cbre.com Carl Lavoie 2 Vice President T carl.lavoie@cbre.com License # M Riley Young 3 Associate Vice President T riley.young@cbre.com License # Joanne White Specialist, Client Services T joanne.white@cbre.com Nektar Diamantopoulos 3 Vice President T nektar.diamantopoulos@cbre.com License # B0948 Manish Jain 1 Associate T manish.jain@cbre.com License # M *Sales Representative CBRE Limited, Real Estate Brokerage 1 Mortgage Agent CBRE Limited, Ontario, Mortgage Brokerage License: Mortgage Broker CBRE Limited, Ontario, Mortgage Brokerage License: Courtier Immobilière CBRE Limitée, Quebec, Agence Immobilière : G Mortgage Agent CBRE Limited, British Columbia, Brokerage License: X029127MMB Please visit our website: This disclaimer shall apply to CBRE Limited, Real Estate Brokerage, and to all other divisions of the Corporation ( CBRE ). The information set out herein, including, without limitation, any projections, images, opinions, assumptions and estimates obtained from third parties (the Information ) has not been verified by CBRE, and CBRE does not represent, warrant or guarantee the accuracy, correctness and completeness of the Information. CBRE does not accept or assume any responsibility or liability, direct or consequential, for the Information or the recipient s reliance upon the Information. The recipient of the Information should take such steps as the recipient may deem necessary to verify the Information prior to placing any reliance upon the Information. The Information may change and any property described in the Information may be withdrawn from the market at any time without notice or obligation to the recipient from CBRE. CBRE and the CBRE logo are the service marks of CBRE Limited and/or its affiliated or related companies in other countries. All other marks displayed on this document are the property of their respective owners. All Rights Reserved.