Florida Market Update: June 3, 2024

Florida Market Update: June 3, 2024

Written by Max Downing, Originator

For this month’s Market Update, we are discussing three major themes being seen on the financing end of commercial real estate deals in Florida:

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1.?Lenders' Are Constantly Changing Appetites

Many lenders have specific amounts of capital allocated for different asset types [multi-family, hotels, retail, industrial, etc.], and it's common today to find a lender who tells you they're maxed out in one of these categories. A lender will tell us "A loan was just paid off”, "We had a deal fall through", "We just raised fresh capital and now have $60 million for new hotel loans, but $40 million of it is already in underwriting, so there’s really only $20 million left unless anything else falls out” in order to squeeze a deal into their bucket that might be the most competitive option available.

These appetites are changing almost weekly amongst lenders, and originators at Largo Capital are experts at knowing which of these lenders throughout the state have capital for a specific asset class at any given time.?

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2. Borrowers Are In Need of Backup Options

Piggybacking off of that, clients have come to us over the past year with horror stories of their local banking relationships turning down a deal they previously financed, or re-trading terms at the last minute to make the deal unattractive for the sponsor, otherwise known as “quoting to lose”.

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A hotel refinance we had signed up with a local credit union in Florida was re-traded twice on terms before being thrown out altogether.? Thank goodness we had two other banks, a life insurance company, and short term bridge options ready to go as backups, and we were able to close with ease before the client’s hard maturity date.??

Everyone has a local bank, and even if you think they will execute, it’s?still?a valuable exercise to scan the entirety of the market to see other options and what’s out there.? The best part is Largo Capital can perform this entire process on your behalf.???

3.?Debt Service Coverage, not Loan-To-Value, is driving Loan Amounts.

As an example, an investor purchases a retail strip center, brings all rents in the center to market rates, and now the NOI has increased significantly, and the investor looks to cash out and pull equity off the table by refinancing.? When we had ultra-low interest rates, developers might be able to refinance up to 75-80% of the newly stabilized value and have no problem meeting most lenders minimum 1.25 Debt Service Coverage Ratio.??

Today, your stabilized loan amount [or loan amount for a purchase or construction loan] might only pencil to 60-65% of the purchase price, cost, or stabilized value depending on the metrics and how the lender underwrites the loan.? This is the range where we're seeing the majority of deals max out today.? This means more equity is required in most cases from investors/developers to close deals, and more equity is being left on the table in cash-out refinance scenarios.??