COVER STORY, APRIL 2007

FINANCING GROWTH
Financing in Texas continues to stay strong and seeks out new markets in 2007.
Stephen O’Kane

From retail to office to industrial, the lending climate in Texas continues to stay healthy as 2007 carries on. Lenders are catering to all property types and seeing a rise in just about every loan category. With the population and job markets on the rise, the immediate future looks good for the commercial real estate industry. Major cities in Texas — such as Dallas, Houston, Austin and San Antonio — will continue to shine, while new markets appear on the horizon.

Banks and lenders are no longer only looking at the major cities to find profit. While the most active markets will likely continue to stay strong, the current amount of expansion has brought companies the opportunity to find business elsewhere.

“The major cities remain attractive to lenders and investors,” says Stuart Wernick, president of Dallas-based Quantum First Capital. “Even second-tier towns are on the lenders’ radar screens because they need to get their capital out.”

According Wernick the lending climate is extremely hot as there is now more money available for every product type than ever before.

One such product is multifamily, and Quantum First Capital funded two significant multifamily projects in 2006. The company closed approximately $5.04 million in financing to a Massachusetts-based real estate investment firm for the acquisition of The Park at Summerhill located at 5201 Summerhill Road in Texarkana, Texas. The property, which is 93 percent occupied, houses 184 units. The loan was fixed in the 6 percent range for a 7-year term with 3 years interest only and a 30-year amortization.

Quantum also closed a $4.6 million loan for the acquisition of Westridge Apartments, also in Texarkana. The property, which is located off of the Interstate 30 access road, features 176 units as well as a swimming pool, a tennis court, laundry facilities and a clubhouse. This loan was fixed at 5.75 percent for a 7-year term with 3 years interest only and a 30-year amortization.

“The real estate markets are generally in balance with some demand for new inventory,” says Jim Kirkpatrick, vice president of Houston-based Live Oak Capital. “Available capital is plentiful and, even at the upper end of the forecasts, remains reasonably priced based on historical standards.”

Live Oak Capital has been active in Texas with its recent financing of two significant multifamily projects. Kirkpatrick, along with Brandon Myers, also with Live Oak Capital, has arranged an $11 million 4-year LIBOR-based floating-rate loan for a portfolio of three Class C apartment properties in Houston. Live Oak Capital also is financing a new multifamily project in Houston called Newport of the Lake Apartments. The project, which is being developed by a limited partnership by the name of Newport on the Lake, will feature 234 units and offer amenities such as a clubhouse, a fitness center, a conference room and a business center.

The company also is involved with the office market. Live Oak Capital recently arranged financing for the Westchase Office Buildings I & II in Houston. On behalf of a limited partnership sponsored by RPD Catalyst, the company has arranged a $10.05 million permanent loan through NewStar Financial for the acquisition of buildings. The 142,522-square-foot property is located at 3000 and 3100 Wilcrest.

“Overall, commercial real estate lending in Texas is strong right now throughout the state,” says Timothy Young, senior vice president of KeyBank Real Estate Capital’s Dallas office. “Dallas, Houston and Austin are all popular with institutional investors in office, industrial, retail and apartments.”

KeyBank Real Estate Capital has financed Wilcox Center @ 190, a speculative office project under construction in Plano, Texas.

KeyBank Real Estate Capital is involved first-hand with several major office projects in the state as well. The Cleveland, Ohio-based company has financed Wilcox Center @ 190, a speculative office development under construction in Plano, Texas. The project, which is being developed by Cawley Wilcox Development Company, will span approximately 185,000 square feet at State Highway 190 and Independence Parkway upon completion. In addition, the development will be able to accommodate approximately 150,000 square feet of extra space.

In light of all of this lending activity in the Lone Star State, there appear to be three main categories of financing, including permanent loans, fixed-rate loans and forward commitments.

Permanent loans seem to be the most popular choice for companies looking for financing, but lenders also are seeing requests for other types such as interim, CMBS and syndicated interim loans, according to Young. “Permanent loans today are a commodity, and pricing is pretty much in line from lender to lender,” says Wernick. “Borrowers are looking for speedy closings and ones without changes.”

On the retail side, Metropolitan Capital Advisors recently arranged a $3.86 million loan for the construction of a new Ashley Furniture store, which located near Interstate 35 in the Central Texas Marketplace, a retail center in Waco, Texas. The interim construction loan was provided for a partnership controlled by Oakridge Investments.

Fixed-rate financing also is strong, says Scott Lynn, director and principal of Metropolitan Capital Advisors. “With interest rates moderating and even declining in some cases during the first quarter of 2007, fixed-rate loan pricing seems to be incredibly attractive. Fixed-rate lenders such as conduits and life insurance companies are competing aggressively for every fixed-rate loan opportunity, which has translated to even more of a pricing ‘bonanza’ for borrowers as capital providers seem motivated to ‘get the business.’”

Forward commitments are showing signs of growth as well. Offering a locked rate for projects not yet established is one way to satisfy the expansion currently taking place throughout Texas, according to Wernick.

“Forward commitments are becoming more attractive today with many properties not yet stabilized,” says Wernick. “Forwards have helped borrowers quantify their rate risk by locking in a rate today for a funding in the future. Forward rate premiums are also at historical lows, and now is the time to take advantage of them. Additionally, with more Mezzanine programs being announced weekly, the competition has been driven to drop their required yields by 200 to 300 basis points over the last 12 months.”

With the amount of new developments under construction or planned, 2007 looks as if it will be another strong year for financing in Texas.

“It is a great time to be a borrower,” says Young. “The continuing stream of capital into commercial real estate in Texas means that investors and developers are in a position to expect their capital provider to help them get their deals done — on their timetable.  The investment market for the best properties is just as competitive as the lending climate. This means that those lenders that are quick to commit and quick to fund will be the ones who help their clients close the deal.”


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