January Industrial Capital Markets Update

Demand… Demand… Demand… will drive the industrial sector throughout 2018. Occupancy is at an all-time high, rents are escalating as demand for space is increasing. Expect all major capital providers to aggressively pursue industrial opportunities. We’re expecting higher LTV thresholds, longer interest-only product, lower rates, & flexible prepayment options. As these capital providers chase yield and portfolio diversification, we’ll see lenders chase more owner-occupied & older product than in previous years. All in all, we at Arriba Capital believe the industrial sector will continue to flourish throughout 2018.

 

Banks:

 

Community & regional banks will be bullish on industrial assets. Leverage will cap out at 75% LTV, rates will be priced in the 4.25% - 4.95% range, 3-5 year terms, with up to 25-year amortizations. Banks will win some deals due to adequate leverage & prepayment flexibility.

 

CMBS:

All the major CMBS lenders will be active in the industrial space. Leverage will be tapped out at 75% with lenders looking for debt yields will start at around 8.5%. 10-year fixed rate money will be priced in the high 4’s to low 5’s. Multitenant properties are preferred.

 

Private Debt Funds:

The private debt funds will be active in the industrial space throughout 2018. Will other capital providers chasing this product, private debt funds will win on the repositioning deals & higher leverage opportunities. Expect leverage to achieve 85% - 90%, with rates between 4.50%-9%. Ground-up construction financing will be considered by a number of these private debt sources.

 

Life Insurance Companies:

The life insurance companies will be active throughout 2018. Markets rated to oil markets will be tougher for life companies to underwrite. Leverage will max out around 70%, but most deals will be done around 60% LTV. Life companies will allow borrowers to lock in the interest rate at application. Rates will start around 4%, with 3 – 20-year terms and 25-year amortizations.

 

Construction:

Lenders will strongly consider ground-up construction opportunities in search for yield. As always, lenders will scrutinize the current development pipeline for new product coming online. Expect banks to leverage up to 60-65% LTC. They may consider higher leverage with a strong tenant in tow. Private debt funds will consider up to 85% LTC for the right opportunity.