During the past few years, Boston’s commercial real estate market has seen a flurry of activity downtown, with numerous properties trading hands.
But as the list of downtown properties yet to be traded continues to dwindle, investors in the Boston market will turn to the suburbs, where levered buyers and debt become a much larger part of the conversation.
Compared with historical normal, funding is still cheap, which allows suburban buyers to lever up to a 65-70% LTV ratio and hit the return thresholds they are looking for.
In recent years, the debt market has become extremely active with numerous mortgage brokers competing for deals.
But in the current market, experience and execution are key, says Tom Sullivan, an Executive Director at Cushman & Wakefield who worked as a commercial lender for 14 years.
“That direct lending experience isn’t something most mortgage brokers have,” he says, “Closing a loan is not an easy thing to do, so having that direct lending perspective is a significant advantage for our team.”
Sullivan, who has placed in excess of $5 billion of senior mortgage and mezzanine real estate loans across all asset types during his career, is working with the Cushman & Wakefield Capital Markets team to finance deals, but also push beyond that.
“We really want to serve as a trusted adviser to our clients,” he says. “We can work with them not just on individual deals, but also in general managing risk across their portfolios based on their near and long-term goals.”
In terms of risk in the market, most sectors continue to feel healthy, says Sullivan. However, some asset classes are showing some cause for long-term concerns.
As recent news reports have covered extensively, numerous big box retailers – such as Sears, Kmart, and Macy’s – are dropping stores and selling assets as they struggle to stay afloat. That could create significant challenges for B Malls and secondary located retail centers across the country.
Boston’s recent burst of multifamily development, particularly with luxury units, also remains something to keep an eye on. At this point it remains to be seen if, given how much new supply has been built, the properties can continue to grow rents and see value increase.
“It’s a unique point in the market,” Sullivan said,” and it will be very interesting to see where it goes next.
Tom Sullivan is an Executive Director at Cushman & Wakefield in our Boston office. He has closed more than $5B in commercial real estate loans across all asset types.