February 4, 2016
Connect Media asked Money360’s Gary Bechtel to share insights from the MBA’s CREF/Multifamily Housing Convention & Expo he attended this week in Orlando. Here’s a few takeaways from the Orange County-based online marketplace lender:
1. What was the buzz you heard at the conference? What were the hot topics or trends discussed?
2016 Will Be A Good Year
The consensus is that 2016 is going to be a good year for commercial real estate. As a whole, 2015 was a record year for a number of life insurance companies, GSEs and the industry overall, with the exception of CMBS. We can expect to see more of the same in 2016.
The CMBS World Is Changing
Spreads have widened dramatically for some of the new deals that have come to market. During the middle of last year, spreads were 260-265. Today’s spreads are at 310 and going up. As a result, the cost of capital continues to rise. Couple that trend with the risk-retention regulations that start in December, and the CMBS world could constrict significantly in 2016.
Opportunity for Non-banks and Fin-Tech
Over the course of 2016, we’re going to see a gap in the available capital to fund the loans that are maturing this year, and, to a lesser degree, 2017. There is concern over where the money to fund those loans will come from, and many believe the capital will come from the non-bank and fin-tech sectors. Non-traditional lenders, like marketplace lenders, can tap into new sources of capital, either accredited investors or institutional investors, who are now sensing the opportunity to get above average deals, to bring that capital to market. As a result, we can expect to see growth in these sectors to help bridge the liquidity gap.
2. What was the reaction to the Money360 platform by other attendees?
Money360’s marketplace-lending platform has been very well received by the MBA community. I’ve been educating many of those I meet on the difference between peer-to-peer (P2P) lending, crowdfunding and marketplace-lending platforms. A lot of the conversations have been around how Money360 differentiates itself from other players in the space. I explain how Money360 commits to fund loans, and then lays off the loans into some secondary market execution – whether it’s to an investment pool of accredited investors, or to leave it in our fund to transact with an institutional partner.
3. What was the focus of conversation about regional markets such as California?
There’s a lot of focus on the markets that are heavily driven by one or two industries. Markets that come to mind include Houston for its oil and gas industry, and Atlanta, Florida, and Southern California for their growth in construction. CRE lenders are definitely starting to look at how to underwrite loans for markets with industry-related slowdowns and economies. For the markets with industry-related slowdowns, a more conservative underwriting approach is being taken.
Washington, D.C.’s market continues to be strong, as well as technology areas like Silicon Valley.
4. Where will the capital be going over the course of this year?
The general consensus is that the federal government will raise interest rates at least once, potentially twice this year. Generally speaking, CMBS spreads will continue to widen. Overall, we are going to see an increased-rate environment for the rest of 2016.