Chase’s Kevin Pleasant: Investing for the Long-Term, Build Strong Balance Sheet

By Dennis Kaiser

Connect Orange County is just around the corner. The annual gathering is set for August 22nd at The Resort at Pelican Hill in Newport Coast. More information about the event and registration details can be found here.

Connect Media asked Kevin Pleasant, West Region Head, Chase Commercial Term Lending, to share a few insights about the trends driving the market, strategies at play, as well as what deals are getting completed at this point in the cycle. Check out his responses in our latest 3 CRE Q&A.

Q: What are the overall trends you see playing out in Orange County so far this year? Is there runway left or should companies prepare for a downturn?
A:
We’re seeing strong market fundaments for the industrial and retail markets, with solid demand and lack of supply. Retail ground-up development has slowed, as builders begin the process of transforming vacant anchor space in malls and big box stores across the metro area. Vacancy across the industrial market in Orange County is at near historical lows. The office sector is on par with the national vacancy rate, with rent growth continuing to outpace the national average, however, sales volume has been slower this year. We’re also seeing strong multifamily fundamentals in Orange County, vacancy remaining below 5% through 2020, according to CoStar.

We continue to monitor the real estate environment for signs of slowing.

Q: How are CRE investors adjusting their decisions based on those factors, and how should they be?
A:
With uncertainty surrounding the end of the cycle, developers and investors are focused on a long-term approach to investing and taking the necessary steps to build a strong balance sheet. That said, many investors are improving the efficiencies of their properties, maintaining moderate to low debt levels and reducing expenses where possible. Those investors seeking “cash-out” refinances are not only looking to redeploy capital today, but saving for investment opportunities that may present themselves during a downturn.

Q: What are some examples of deals you’ve seen that reflect the market realities?
A:
With the notable decline of interest rates since the beginning of the year, investors are weighing whether or not it makes financial sense to incur the cost of paying the prepayment penalty associated with their existing loans in an effort to lock-in today’s low interest rates.

The common theme we’re seeing across most deals is that investors are not looking to over-leverage. Recently we refinanced an industrial loan in Lake Forest for a long-term owner. While the developer received a significant amount of proceeds, the property still maintained a sub 40% loan to value.

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