Nebo Capital attended the Urban Land Institute’s Fall Meeting in Denver last week. The conference was upbeat and positive, in stark contrast to the last several years. The people we met were developers and investors who either had deals in the pipeline or were looking for new opportunities. None were sitting on their hands waiting for more improvement in the market. The collective perception was that the market has already bottomed, the recovery will continue beyond 2013, and now is the right time to be generating a deal pipeline and acquiring land for development.
The conference sessions included the real estate needs of aging parts of the population, the demands of Gen Y and other younger demographics, the status of foreign markets, and leadership in commercial real estate, just to name a few. The general consensus is that credit is loosening slowly but surely for the right deals with the right sponsors. Institutions are aggressively chasing core, which will has caused significant cap rate compression for the most institutional assets in the strongest markets. There was even some discussion of possible overbuilding in certain core markets by 2014. We should continue to see institutional capital expanding its appetite for risk to deals outside of just the best of the best. CMBS is back in force and we should expect to see the availability of CMBS debt continue to grow over the next several years, which will push conventional lenders back into construction and bridge debt as the yields on high quality stabilized assets are compressed and competition increases.
Opportunistic capital is readily available for distressed asset acquisition, partner buyouts, and higher yielding transactions that have a transitional component, good real estate, and a solid business plan. Value-add deals have been difficult to finance over the last few years but are becoming more attractive to the capital markets as the industry recovers. Strong sponsors in good markets should expect to see their deals capitalized with conservative senior debt and a gap-financing component such as mezz or preferred equity.
The conference was well attended, the mood lively and optimistic, and the participants are doing deals. This reflects what we’re seeing in the market, a recovery that is gaining momentum and creating opportunity for sponsors with good deals. At Nebo we see our deal flow increasing in volume and quality. It looks like 2013 is shaping up to a very busy year.