Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)
Issue link: https://sct.epubxp.com/i/390025
companies will lend 60 to 65 percent loan-to-value, banks 65 percent to 70 percent, and CMBS securities 75 percent to 80 percent. For CMBS, the borrower will pay more going up the loan-to-value risk curve, says Broad. Nevertheless, for a 10-year, interest-only mortgage at 75 percent to 78 percent loan-to-value, one may find 4 percent CMBS money, says Stephen Coslik, chairman of The Woodmont Co. The firm put a C- quality shopping center on the mar- ket. "We bought an existing center in the Greater Dallas–Fort Worth area last year, put a little lipstick on it, and we are now selling it for around an 8 percent cap rate," he said. Most of the trading in retail properties is taking place at the B- and C-property level, Coslik says. "That's what is available on the debt market. You are not getting high- LTV loans, but when you are only paying 4 percent on your money, there is plenty of value to be created at your property." F o r P r u d e n t i a l , a g e n e r i c , A- property, grocery-anchored, shop- ping center loan for 10 years, interest- only and at 65 percent loan-to-value will run anywhere from 140 to 150 basis points over the 10-year Treasury rate. Prudential would love to finance more grocery-anchored deals — if it could find them. "It is challenging to find all the deals to meet our appetite," said Diaz. "There are not enough deals for all of the capital out there. Partly, there is so much capital that wants real estate because it is perceived to be a better investment than other fixed-income plays. But also, we robbed ourselves in the past three years doing a lot of early refinancing. We have taken some of that pipeline out, but going forward in 2015, 2016 and 2017, there will be a wave of 're-fi' coming up." S C T Regulatory restrictions on Asian insur- ance companies have been easing, allowing them to invest in real estate outside their domestic markets. This huge source of capital will eventually flow into the U.S., beginning in major markets and probably through direct investment in high-rise office buildings before moving on to other geographic areas and property types. Initially, the focus will be the do- mestic markets with which these Asian insurers are familiar, says Henry Chin, Hong Kong–based head of Asia-Pacific research at CBRE. They will move on to global gateway cities such as Hong Kong, Sydney, Frankfurt, London and Paris, and then to the U.S. — to the likes of Los Angeles, New York and San Francisco. Total Asian insurance assets reached some $6.7 trillion last year, versus $5.8 trillion in the U.S., according to CBRE. Four countries — China, Japan, South Korea and Taiwan — control about 90 per- cent of the insurance assets in the region. Japanese insurers have traditionally looked overseas, but now insurers from China, South Korea and Taiwan will be doing so too. "This is mainly a policy- driven issue," said Chin. "Asian countries have identified the need to catch up with international standards, increasing the flexibility and diversification of insurance fund investment portfolios." Indeed, the Asian insurers must do some catching up relative to Western counterparts. Industry data show that real estate accounted for about 2 per- cent of Asian insurance portfolios last year, or about $130 billion. By coun- try, it was 1 percent in China, while in Japan it was 1.8 percent and in South Korea 2.4 percent, CBRE says. By comparison, developed markets typi- cally allocate nearly 5 percent of their assets to real estate. The Chinese regulatory approach has been to liberalize capital mar- kets overall rather than focus on insurance, says Chin; regulators have only lately turned their attention to the insurance industry. In South Korea, the approv- als process for overseas investment is lengthy now, but officials are reviewing that process. And in Taiwan, given historically low investment yields, the government has started evaluating outbound opportunities. Most of the capital allocation from Asian insurers will continue to involve direct deals, Chin says, but some will work through indirect vehicles such as equity funds to invest in shopping malls and other assets beyond office space. — SB Asian insurance companies set to invest in U.S. "It is challenging to find all the deals to meet our appetite. There are not enough deals for all the capital out there. We robbed ourselves in the past three years doing a lot of early refinancing." 46 S C T / O c t O b e r 2 0 1 4