August 19, 2015
Newmark Grubb Knight Frank is obviously very busy when it comes to commercial real estate financing across the state. We recently had a conversation with Scott Selke, the senior managing director of NGKF Capital Markets, and he spoke about hot areas where he is seeing activity. Two areas that are especially bright include Downtown Los Angeles and the Silicon Valley. Our conversation is below.
What is the refi climate out there like right now? Has it gotten especially competitive?
The competitiveness of the capital markets is driven out of the supply/demand imbalance which continues to be significantly biased towards an abundance of capital in all parts of the structured finance capital stack. While lenders and investors will always complain of the lack of optimal lending and investment opportunities, the facts are that this supply will find ways to deploy. While sales for significant office assets fell in the month of May on a year over year basis, volume for 2015 is up 38% year to date (with CBD buildings up 23% and suburban buildings up 53%). NGKF Capital Markets on the west coast is focused on CBD or close-in suburban assets that are right outside the downtown core, but within the overall MSA. Two of our most recent transactions demonstrate the demand in both submarkets.
Competition on each opportunity was extremely high with the best lenders winning out at rates that made their competition subdivide into two categories: (1) Downtown Los Angeles A CBD located, existing class A office refinance: My team was able to secure 10-year fixed-rate financing that provided the client the ability to refinance an existing loan at a much lower rate and was provided additional dollars for modernization and cash out.(2) Silicon Valley A close-in suburban-located, existing retail center refinance: My team has negotiated a 5-year fixed rate financing that provides our client very flexible terms with an extremely low rate. All in all, our job is to make sure that NGKF Capital Markets is acting as a fiduciary to its client and recommending the best overall lender and relationship as our clients have multiple opportunities for which this lender can evaluate and submit terms.
Are there any parts of the state that are especially heating up and under the radar of a lot of investors?
NGKF Capital Markets is an international practice with private markets investment sales and finance professionals located in every major city throughout the globe. Our advantage is utilizing cross-border and cross-market professionals to expose our projects, thereby enhancing competition and ultimately value or lending/investment dollars. None of the markets in which we participate are “under the radar,” they only continue to “heat up.”
Driven by increasing employment and an educated population, California is an extremely attractive market for domestic and international, private and public investors. These investors seek CBD-related opportunities with differentiation in their approach and evaluation of risk. NGKF Capital Markets sees further opportunities in Los Angeles, San Francisco and Silicon Valley. I believe that many investors would categorically say these markets are over-inflated from a valuation perspective or the yields are too low for lenders to make money in a conservatively levered position, but it’s these same investors that continue to hunt diligently inside these geographies and underwrite rent growth and appreciation. NGKF Capital Markets’s greatest successes will continue to be in funding these investors or helping them inside a liquidity event.
I am enthusiastic about Los Angeles south of the 101 Highway, east to the Arts District, and south to El Segundo. In San Francisco, our team is working on Union Square adjacent value-add projects and redevelopment projects throughout the city. Silicon Valley is a fantastic and entertaining market that constantly has me on the edge of my seat as the market demand for office and mixed use is mind-boggling.
What property types are you especially excited about?
NGKF Capital Market covers all property types. I’m most excited about mixed use. Creative office with retail in an urban or campus setting, apartments with retail, or hospitality with retail. Mixing uses to create a more live-work-play environment with services and amenities within walking, biking or short uber-distances are changing neighborhoods and cities across the West. The recent acquisition of ARA, one of the largest multifamily focused groups in the nation, is providing massive amounts of exposure to mixed-use in large and small MSA’s across the country. Knight Frank, our global affiliate, is a fantastic lever for us when foreign investment could invest or lend on a mixed-use project.
Are there any interesting/challenging deals you have done lately?
Our team focuses on liquidity events, the sale, purchase or financing of assets. The most interesting part of all the transactions in which we have been involved is the speed at which both investor and lender capital is able to adapt and evolve. I firmly believe that capital drives the transactions and not the other way around. Buyers with the most competitive cost and structure win out in an efficiently priced and low transaction volume market. Having NGKF Capital Markets headquartered in New York City and possessing offices in all the major financial hubs throughout the world provides us with the most current information on structure and costing along with direct or one-phone call access to both domestic and foreign investors and lenders interested in Western U.S. markets.
We closed the Downtown L.A. class-A office refinance with one of the largest domestic lenders, wherein the service and commitment by their bank was second to none. The Silicon Valley refinance is being executed through a Pacific-Rim bank with the capabilities to fund from $25 million and up with no upper dollar limit, providing us the ability to go back to the same bank to fund.
Tags: acquisition, arts district, bay area, downtown los angeles, east bay, leasing, mixed-use, New York City, newmark grubb knight frank, NGKF Capital Markets, office, retail, san francisco, Scott Selke, silicon valley