Walker & Dunlop's (NYSE:WD) interim loan program (ILP) uses the company's own balance sheet to provide short-term loans for those properties not yet qualifying for permanent financing from the GSEs. Since ILP started in 2012, the company has gone on to arrange permanent financing for 87% of the loans it provided.
This particular deal was for the acquisition of a North Carolina apartment community, and the amount of Walker & Dunlop's bridge loan was $26M. WD subsequently arranged a 7-year Freddie Mac deal.
Established in 1922 and headquartered in California, George Elkins Mortgage Company serves as a direct loan origination arm for a number of life insurance companies, banks, trusts, pension funds, thrifts, and other private capital sources.
It has five offices in CA, and averages $800M per year in brokering commercial real estate deals. The acquisition adds 14 originators to Walker & Dunlop's (NYSE:WD) Capita Markets group.
As part of the deal, about $1.7B in life insurance company servicing is expected to be added to WD's $57.3B servicing portfolio.
Commercial real estate transaction volumes of $254.25B for year's first seven months, fell 15.4% from the same period in 2015, according to Real Capital Analytics (RCA). In July, $30.08 of deals was down 25% from a year earlier.
Cap rates (except for hotels), however, continue to slide.
As to whether there's a bubble, CBRE's (NYSE:CBG) Spencer Levy says no. as fundamentals across markets and asset classes remain strong. Levy also cites an influx of foreign buyers, noting their cost of capital is low and they're patient investors (but don't foreigners always pour in at the top?).
Canaccord's Ryan Meliker isn't so sure about a non-bubble, noting teeny cap rates are a function of invisible interest rates. If rates can't stay low forever, than cap rates have to rise.
One major source of demand has backed off: U.S. REITs' purchase volume fell 64% Y/Y in the first half vs. an 11% increase for institutional investors.
RCA's Jim Costello sums up the bull case: Would an investor rather buy European bonds with negative yield, stick money in a bank vault, or buy some apartment towers which may face plenty of competition, but still generate some return on investment.
U.S. commercial real estate prices could fall as much as 5% in the next year thanks to tightened regulations, a wave of debt maturities, and property sales from publicly-traded REITs, says Pimco.
The shakeout will be a welcome one for those with capital ready to put to work, say portfolio managers John Murray and Anthony Clarke in their report titled, "U.S. Real Estate: A Storm Is Brewing."
Commercial real estate prices coming off of a big post-crisis boom have declined 3% in the past three months, according to Moody's and Real Capital Analytics, and real estate deals in NYC are forecast to decline up to 30% this year, according to Cushman & Wakefield.
Interested parties include: Walker & Dunlop (NYSE:WD), HFF (NYSE:HF), iStar (NYSE:STAR), Ladder Capital (NYSE:LADR), Resource Capital (NYSE:RSO)