From January 13-15, industry leaders gathered in Miami, Florida to attend the Commercial Real Estate Finance Council’s (CREFC) annual conference. Co-chairs included big names like Chris Albano, the Managing Director at Citigroup Global Markets; Kwasi Benneh, the Managing Director at Morgan Stanley; Lea Overby, the Managing Director and Head of CMBS Research at Wells Fargo; and Meena Pursnani the Director at MetLife Investment Management. Meanwhile, notable moderators, panelists, and keynote speakers also made appearances throughout the three-day event.
While the lineup of co-chairs and panelists featured key industry players in the CRE landscape, one of the continuing topics included the large loan space. There was much talk about the market in 2020, what it could mean for mergers and acquisitions, and how the large loan space will be shaped in the year ahead.
The Large Loan Space Defined
Large CRE loans encompass amounts in the high millions, or often billions, and frequently involve single-asset, single-borrower (SASB) issuance. Recently driven by merger and acquisition activity, large loans can be used for refinancing portfolios, such as the $402.8 million loan secured by Brookfield from Barclays, Citi, Bank of America, and Deutsche Bank after purchasing Forest City Realty Trust in 2018.
CREFC Panel Addresses the Large Loan Space
During a panel discussion hosted by David Forti, Partner at Dechert LLP, the topic of the hour was Financing the Behemoths: A 360 View of Large CRE Loans. Panelists addressed topics such as the SASB issuance prognosis, including the impact of projected M&A
activity, overall macro trends, fundraising, and capital deployment. They also covered investor and borrower demand, specifically as it relates to LIBOR replacement and whether or not the SASB subsector is ready for it. Additional discussion points included long-term implications for the SASB subsector and sponsor and property type concentrations in SASB deals.
What Attendees Said About the Large Loan Space
It wasn’t just the conference leaders who were buzzing about large loans — attendees joined in on the conversation, too. According to the Commercial Observer, who reported daily on the event, several CREFC attendees had much to say.
“Accounts that can withstand the liquidity of a whole loan is preferable for us,” a senior CMBS research professional said in regards to life insurance companies in the large loan space. “Accounts have liquidity needs too, so we started going to the SASB space for liquidity’s sake.”
Another professional, identified in the Commercial Observer article as a senior player at a well-known ratings agency, weighed in on the biggest challenge for large deals, saying that it’s “seeing the potential impact of structure and making provisions for it, like lease provisions, recourse carve-outs, and reserves. Where the triggers are placed really matters a lot. In terms of structure, it’s death by 1,000 cuts. When things get stressed that’s when these provisions come around.”
The Large Loan Space in 2020
While concerns dot the horizon (many are still holding their breath for an impending recession) about sponsor limits, others believe that continued M&A activity will fuel the large loan space throughout 2020.
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