Game Changers in Commercial Real Estate Financing in 2016

While 2015 was marked by a low interest rate environment, the implementation of Basel III regulations and a multitude of new entrants to market in all areas of the capital stack, increased capital regulations and constraints will affect leverage and pricing in 2016.

This week, we caught up with Dekel Capital, which has sourced over $2B in financing for commercial real estate investors and developers and, in the past year, placed $100M in JV equity for developers through its proprietary equity fund, Dekel Strategic Investors (DSI). Founder and managing partner Shlomi Ronen (pictured here at a recent golf charity event) offered some insight into three factors that may constrain capital flows in the year ahead:

1. Risk Retention Requirements for CMBS Lenders 

The Dodd-Frank regulations for asset-backed securities (ABS) will be implemented in 2016 and may limit the amount of available capital, as well as increase the cost of CMBS capital. On the positive side, well-capitalized funds are being set up to make up for the constraint in leverage. While that will help with the availability of capital, it'll ultimately have a negative impact on spreads.

2. The FHFA’s $30B GSE Multifamily Cap and New Exclusions 

The cap may have remained the same, but Fannie and Freddie have instated a new quarterly review for possible adjustments given market conditions. New exclusions were added for low-income apartments in rural areas, senior housing loans, small multifamily properties targeting low-income tenants and energy-efficiency improvements.

3. EB-5’s Future at Stake

If you were planning to obtain a green card through EB-5’s visa program, your opportunity may be coming to a close as Congress evaluates the “fairness” of this legislation. To some, this could be a wake-up call to steer away from programs that rely on government involvement and funding. 

Ronen explains that, as banks and CMBS shops grapple with increased regulations, we may see more non-regulated finance companies that are able to provide borrowers with additional leverage stepping into the lending space.

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