Assuming you haven’t spent the past couple of years hiding behind a clothing rack, the news that retail has been contending with an onslaught of store closures and the bankruptcies of big chains like Payless, Sports Authority and Toys “R” Us isn’t new to you.
(To find out how retail helped drive a decline in lending in Chicago, read our Chicago Lending Spotlight.)
But what you might not be sure of is who remains active in retail financing and what the big picture is. After all, we hear a lot about the bad news, but how bad is it really?
The big picture: Retail vs. all property types
CrediFi looked at loan volume across the country to take the pulse of CRE financing activity since the global financial crisis.
When we examined commercial real estate loans by property type, we found (no surprise) that loan activity growth has been slower in the retail segment than in all property types.
The good news is that quarterly loan growth compared with our starting point of Q1 2009 has continued, albeit at a slower pace, as can be seen in the graph below.
“Retail financing is underperforming the market overall, but it hasn’t dropped off the cliff,” said CrediFi CEO Ely Razin.
What’s more, the uncertainty in the retail segment can create opportunities for long-term investment in high-quality properties.
“There are pricing opportunities,” Ronald Dickerman, president and founder of New York-based real estate investment firm Madison International Realty, said at DLA Piper’s 2018 Israel Real Estate Summit in Tel Aviv on Wednesday. “All retail is not created equal.”
The players: Who’s financing retail properties
We know that, as we saw above, retail CRE financing hasn’t “dropped off the cliff,” but that doesn’t mean all lenders are running to finance the next retail mortgage request that comes across their desk.
CrediFi analyzed the portfolios of lenders across the U.S.to figure out which banks and non-bank lenders were the ones financing retail properties in 2017.
We examined the number and size of the loans originated to see who’s financing small-balance loans, midsize mortgages and big loans.
So who’s the biggest lender for the biggest loans?
Bank of America is the top lender for U.S. retail loans of over $150 million each, followed by Wells Fargo and Citigroup.
The list also includes foreign lenders such as the U.K.’s Barclays, Canada’s Royal Bank of Canada (which acquired Los Angeles-based City National Bank in 2015) and Switzerland’s UBS, along with the Guardian Life Insurance Company of America. The insurance provider ranked as the No. 10 loan originator for retail mortgages over $150 million.
Though we often think of big malls when we think of big-ticket retail properties, some of Bank of America’s large-balance loans are not for malls but for portfolios of standalone retail.
For instance, Bank of America originated a $335 million loan in June to Wendy’s franchisee Briad Wenco for several Wendy’s properties in Pennsylvania and New Jersey, including standalone Wendy’s restaurants at 132 N. MacDade Blvd. in Glenolden, Pennsylvania, and 3100 Chichester Ave. in Marcus Hook, Pennsylvania.
In Colorado, Bank of America financed a portfolio including the standalone auto body shop Caliber Collision at 4635 Park Vista Blvd. in Colorado Springs, along with its offices. The portfolio is owned by Dallas-based real estate investment firm Capview Partners, which specializes in single-tenant, net lease retail properties. In January, Capview raised over $126 million for a fund that focuses on freestanding buildings with a single tenant.
Now let’s examine retail loans in the $10 million to $25 million bracket.
What we found was that many of the national banks financing the largest retail loans are also financing smaller ones. Wells Fargo, for instance, was the top CRE originator for this bracket in the retail segment in 2017, and No. 2 in the over $150 million bracket. Other banks on both lists include Bank of America, Morgan Stanley, Citigroup and Goldman Sachs.
Other lenders in the $10 million to $25 million category include smaller regional banks such as Cleveland-based KeyBank and Dallas-based Comerica.
Connecticut-based private investment firm Starwood Capital Group, which closed its 11th opportunistic real estate fund last month at $7.55 billion, rounds out the list for this category.
While retail players will undoubtedly conduct their due diligence in a time of uncertainty for the segment, our analysis shows that reports of retail’s death have been greatly exaggerated.
Yes, CRE loan activity in the retail segment is underperforming and brick-and-mortar closures continue to be a concern. But CRE lenders – from big national and foreign banks to smaller regional players and non-bank lenders – continue to finance retail properties and loan activity continues to grow.