Industrial will continue to be a desired property type by all lenders. Demand is strong in the sector and occupancy is high. The plethora of liquidity in the market is leading to lenders taking on more risk such as near-term rollover or lower occupancy in order to get money out the door. Watch for more scrutiny on the location and lease term going forward. Lenders will want to make sure the market can support the product and most will underwrite a 10% to 15% vacancy factor. They will also look closely at the rent comps in the area, property historicals and borrower financial statements. Lenders will keep a close eye on the oil market as that affects many industrial tenants.
Leverage will reach 70%, with most deals landing in the 55% to 65% range. Rates will be a function of leverage, and lower leverage stabilized core deals will see rates as low as 120 basis points over the Treasury. Most deals will start in the 160 to 175 basis point range with transitional deals starting at 300 to 325 basis points over. DSC will start at 1.25x.
Banks such as Bank OZK, EverBank, M&T Bank, Synovus, Banc of California, United Business Bank, Hoyne Savings Bank, Comerica, Fidelity Bank and Applied Bank will be active. Axos Bank targets light industrial, outside industrial storage and warehouses. Banks will provide 6.25% to 6.5% rates. DSC will start at 1.25x and leverage will be 55% to 60%.
Life companies, including MetLife, New York Life, PGIM Real Estate, Northwestern Mutual, Guardian Life, PPM America, Principal, Aegon, State Farm, Nationwide, Manulife John Hancock, Voya Investment Management, TruStage and Farm Bureau Insurance will offer some of the best pricing. Ameritas, WoodmenLife and OneAmerica will look at flex and small-bay industrial assets that some of the larger LCs may not fund. Thrivent focuses on Class A distribution buildings, while Security National Commercial Capital seeks light industrial warehouses. Borrowers will see 60% to 65% leverage and mid-5% rates. Life companies want borrowers that have two times the loan amount in net worth and 10%+ in liquidity. LCs will typically prefer a 1.50x DSC on a 25-year amortization schedule, although strong multitenant deals can start at a 1.25x DSC.
CMBS lenders such as Wells Fargo, JP Morgan Chase, Goldman Sachs, Morgan Stanley, Deutsche Bank, Argentic, KeyBank, BMO Capital Markets, Ladder Capital, Natixis, Benefit Street Partners and Basis Investment Group will also strive to compete.
Debt funds and private money lenders, including Canyon Partners Real Estate, Madison Realty Capital, ORIX, Affinius Capital, TPG Real Estate Credit, LoanCore Capital, Lasalle Debt Investors, 3650 Capital, BridgeInvest, Post Road Group, CrossHarbor Capital, Romspen, Trez Capital, as well as many others will try to pick up market share. Debt funds will provide leverage up to 70%.
There will be more interest in small-bay industrial and concrete-tilt new construction assets going forward. Lenders will also like warehouse distribution deals. Count on most lenders to seek multitenant properties with granular rent rolls. Any single-tenant deal will need a credit component. However, the more granular the tenant base, the more they can get away from needing investment grade. Outdoor industrial storage will see some caution. Older non-functional properties will see limited capital options and must have income associated with it.
Industrial deals in New York City, Northern New Jersey, Boise, Idaho, and South Florida, especially Miami, will be targeted. Properties located near a major airport, highway or interstate will see plenty of capital. Portland, Ore., has seen some softening.
Lenders will only want to work with experienced borrowers that have knowledge in this property type. Borrowers also need to have enough liquidity to be able to fix any problems that arise. Lenders want a net worth equal to the loan amount and 10% in liquidity, although many lenders will be willing to negotiate.
