Capital Markets Improving for Private Equity

The capital markets have improved "greatly" for private equity firms in the commercial real estate industry recently, according to Tim Callahan, CEO of Callahan Capital Partners.

In an interview with REIT.com during a meeting of The Real Estate Roundtable at the Newseum in Washington, D.C. on April 12, Callahan said the debt markets are beginning to open back up for commercial real estate lending to private equity firms. With more debt capital entering the private market, equity capital is starting to flow into the space as well, according to Callahan. Whereas lenders initially were only willing to lend for "core-type" property transactions, their reach is starting to broaden, Callahan said.

"That is leading to more activity in the market, which is one of the things we've been missing," Callahan said. "I think at this stage in the cycle, you could say that lenders are going back to the fact that this is a good time to lend."

Callahan called the current mindset in the credit markets a "return to fundamentals," including a stronger emphasis on underwriting. The credit markets evolved between 2005 and 2007 with the emergence of numerous structured products, and the financial crisis forced firms to re-evaluate their lending practices, he said.

"I think we were all somewhat naïve or blind to the fact that there was substantial excess," Callahan said. "I think everyone sort of assumed that even if there was excess in that, it was going to affect somebody else in the marketplace."

Looking at the general state of the office property sector in the United States, Callahan said he thinks the market has "bottomed out for the most part" in the last nine months. While New York and Washington have led the recovery, other locales are beginning to follow suit, according to Callahan.

"I think that for the most part, you're seeing the emergence of a little bit more stability in the markets," he said. "Markets are starting to see some movements in rental increase, although modest, and I think it's really very dependent on job growth. We still have a ways to go on that."

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Capital Markets Improving for Private Equity

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