Shopping Centers Today International

DEC 2015

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

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Page 107 of 143

has seen such great improvement, with rents going up and space being filled." The regional and local banks that sur- vived the recession generally had good balance sheets and were able to grow by taking on loan officers from other fi- nancial entities, including the big banks that had gotten into difficulties. In ad- dition, the Federal Reserve has kept the discount window so low that there is a great arbitrage opportunity for banks to borrow short-term at a low rate and lend long-term at a higher rate. "For commercial real estate, the percentage of loans from regional banks has been increasing," said Jim Costello, a senior vice president at New York City–based Real Capital Analyt- ics. "While all capital sources have in- creased lending, the regional banks are expanding faster. What it gets down to is, the regional and local banks have a low cost of capital and want to earn a good return on it; commercial real es- tate is offering good opportunities." In 2011 the regional-bank share of the commercial real estate lending market was less than 10 percent. Last year that jumped to 14 percent, ac- cording to Real Capital Analytics. As of the start of the fall, retail property lending was still up for the year versus the year before. But following a tor- rid first quarter, the market slowed substantially during the summer, with overall retail real estate lending dropping by 6 percent in July, year on year, and then collapsing by 17 per- cent year on year in August, accord- ing to Costello. In addition, turmoil in the global financial markets, including the de- valuation of China's currency, put a crimp in the commercial-mortgage- backed-securities market, traditionally the main lending source for retail real estate. Regional banks are stepping into the gap, especially as the yields on multifamily have diminished. In Irvine, Calif., Opus Bank has been ac- tively expanding its portfolio with re- tail lending. "Our portfolio was mostly multifamily where we have a competi- tive product and a robust pipeline, but with cap rates higher on retail than on multifamily, we saw an opportunity to expand the portfolio," said Ed Pa- dilla, Opus Bank's head of commercial real estate. "About three to four years ago, we saw multifamily rates were be- ing compressed because of competi- tion, and there was an opportunity to diversify the portfolio while picking the right retail deals and achieving a slightly higher yield." The bank's deal pipeline now stands at $1.2 billion, with 40 percent in com- mercial real estate and 60 percent still in multifamily. The bank lends on the West Coast, chiefly in its core markets of Southern California, Northern Cali- fornia, Phoenix, Seattle, and Portland, 108 S C T / D e c e m b e r 2 0 1 5 For the latest breaking news about shopping center development and the retail industry from Shopping Centers Today , follow @sctnews on Twitter and "like" us on Facebook .

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