Blake Hering, Gantry, Inc. - "Capital Conundrum" | HFO Investor Roundtable 2023

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Capital Conundrum – Rate Expectations

I. Speaker context – Who’s Pip?

a. What is Gantry?

i. Former NBS Capital / Newmark Realty Capital

ii. Small but mighty – 20 owners, 100 people iii. Best life company lenders in Portland

b. Are we due for a correction?

i. Fed floodgates - The GFC and Covid

ii. Longest sustained period of economic expansion in US History

iii. The Golden Decade of CRE

iv. The Big Reveal on Asset Types: office/retail vs apartments/industrial – CBD vs. Suburbs

v. Cycles are the natural order

II. Now what? How will/are lenders responding?

a. Lender mindset = risk avoidance

b. Underwriting tweaks

i. No rent growth projections

ii. Firm 5% or higher vacancy/credit loss (with Covid consideration) iii. Minimum $200/$250 per unit reserves

iv. Focus on expense comps

v. Cap rate not below coupon rate

vi. DSC is constraining factor (1.25:1 = 80% of NOI)

vii. 1.50x on a 25-yr = best rates/terms

III. Interest Rates – the big quandary

a. Forget where we’ve been

b. Spreads in the 200 over range (175 to 250) – benchmarked by Corporate Bonds

c. Rates are generally in the mid-5% range and up


• Expect greater equity contribution

• Plenty of debt available – but more selective

• The tide is ebbing, a focused approach is required

• Expect rates to trend higher in 2023 before moderating

2215 NW Quimby Blake Hering Suite 2 503-905-9102 Portland, OR 97210