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Real Estate Borrowing in the Post-Crisis Period

Spencer B. Haber, CEO, H/2 Capital Partners LLC
April 6, 2015

Borrowing ConstraintsCommercial BrokerageInvesting
Spencer B. Haber, the CEO and Chairman of H/2 Capital Partners and Chairman-elect of the Zell/Lurie Center's Advisory Board, recently sat down with Martin Bucksbaum Professor of Real Estate, Finance and Business Economics & Public Policy, Nancy A. Nasher and David J. Haemisegger, Director of the Zell/Lurie Real Estate Center, Joe Gyourko to discuss the state of commercial real estate borrowing and lending after the Great Recession

Overview

Executive Summary

Spencer B. Haber, the CEO and Chairman of H/2 Capital Partners and Chairman-elect of the Zell/Lurie Center's Advisory Board, recently sat down with Wharton real estate professor Joe Gyourko to discuss the state of commercial real estate borrowing and lending after the Great Recession. Haber noted that post-crisis regulation and the need for banks to de-lever their balance sheets has generally made bank and insurance company lending more simplistic than prior to the crisis. In particular, banks are emphasizing commodity-like risk and smaller loans to be held on balance sheet. They are also less flexible and nimble than they were pre-crisis. Bank construction lending has also slowed to a fraction of its pre-crisis size. But, for down-the-middle loans, banks are being aggressive on pricing and funding them from their balance sheets. This conservativism has left a shortfall in funding for commercial real estate. For example, of $200 to $300 billion per year of new loans that need to be made, insurance companies are providing only $60 billion. The gaps in the traditional credit markets are being filled by private capital--for instance, pension fund and sovereign fund capital. This capital is fulfilling a traditional finance function. Haber expects private capital's role to continue as long as it enjoys a sufficiently low cost of capital to compete with banks and insurance companies. However, to be successful, commercial real estate lending using private capital must become a customer-driven business with an infrastructure and a platform for making loans.

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