Volatility Is Here, But Wide Range Of Capital Products Keep Seattle CRE Strong

Capital markets are transforming and adjusting to the new reality of volatility, but that doesn’t mean capital is no longer available.

Last week, panelists at Bisnow’s Seattle Capital Markets event at the Four Seasons Hotel Seattle were cautiously optimistic about the continuing availability of capital to keep the city’s commercial real estate industry pumping.

“It’s challenging doing business in a volatile real estate market,” KeyBank Real Estate Capital Senior Vice President of Originations, West Region Josh Berde said. “You have to have the ability to be thoughtful about how you are going to execute."

For example, Google recently closed on a refinance of a campus in Redmond. The company chose to lock in the rate, and then the rate came down.

Though rates are rising, they are still low from a historical perspective, Berde said. And it may be a good thing that money is not so readily available.

“It gives us a little pause, a chance to catch up,” Berde said.

The mixed national economic data, the big geopolitical picture and the Federal Reserve all affect the way lenders are thinking, Symetra Senior Vice President of Mortgage Lending Colin Elder said.

“I like that the Treasury has come down a little bit,” he said.

Berde sees a lot of liquidity in the current market.

“There used to be a bifurcated market, but it has turned into a bit of a mishmash,” he said. “There is more in terms of product, but it’s more confusing than it’s ever been. We think that’s a good thing, but it takes some real knowledge to understand it.”

All the different products are also creating more competition.

“Banks have always been there as competition, but now there is a new level of players like credit unions and nontraditional, noninstitutional lenders you haven’t seen before,” Elder said. “You need to look at the fine print.”

Pyatt Broadmark Management co-founder Jeffrey Pyatt said there is still a lot of money out there.

“You get the new guys coming in and they want to fight on price, so we have to differentiate ourselves,” he said. “Newcomers come in and want to be the cheapest, and it works for a minute.”

NorthMarq Capital Managing Director and Senior Vice President Ron Peterson said he gets solicited weekly by bridge lenders and mezzanine lenders that promise low fees.

“The reality is that it’s hard to do,” he said. “Pricing can range from 8 to 12%, and sometimes go even higher,” he said. “The bridge lenders are very active.”

Berde said adding to the noise are deals that are pitched one way, but in the end are too good to be true.

"All the liquidity is pushing new vehicles, but we are competing against ‘phantom’ deals,” he said.

Elder said that is why it is important to use a professional who understands the lay of the land. It is well worth the money.

Still, Pyatt is bullish on the Northwest market.

“In the housing sector, things will change,” he said. “If you give me 3 or 4 or 5% growth, we can sustain that. I like all the little companies that are spinning off of Amazon and Google. I’m curious to see where the condo market breaks off.”

Berde said there needs to be some level of correction to sustain this level of growth.

“If we can get this thing balanced we can ride the wave for a long time,” he said.