Real Estate Q&A: Alliant’s Sturmwind Shares Lending Insights

Alliant Credit Union’s Yonah Sturmwind, a member of its origination team, shares insights about the overarching trends driving today’s lending market, some of the ways investors are getting deals done and what product types are attractive. Leading into the upcoming Western States CMBA Finance conference, he talked with Connect Media about those topics and more in our latest CRE Q&A.

Q: What are the overarching trends you are tracking leading into the final months of the year?
A: Heading into the last few months of the year, there is a significant amount of uncertainty in the macro-economic environment. We will be watching for signals that the economy has turned into a recessionary environment, and how the Fed reacts to those signals. A major effect on the economy will be the impact of the trade war with China. U.S. tariffs have been pushed off to spur holiday spending, however China just enacted more tariffs on U.S. goods. The U.S.’s response is not known. We will also be looking towards the yield curve for further clues, as we move out of the growth phase of this cycle. In particular we will be tracking the Fed’s policies related to interest rates. At their most recent meeting in Jackson Hole, WY, Reserve Chairman Jerome Powell said the state of the global economy is deteriorating, but the economy is still strong in terms of price stability and full employment. No movements yet, but the Fed is ready to move as necessary.

Q: What investment strategies or approaches are best suited to the environment that may be coming?
A: A couple of key strategies to keep in mind as we approach the end of another real estate cycle is to maintain conservative underwriting standards and financial flexibility. Whenever there is uncertainty in the market, there is a natural flight to quality, however quality deals are tough to win when competing against all of the capital chasing deals, and there is a tendency to loosen your standards. Remaining steadfast will serve investors well as the possibility of a recession or correction lingers. That being said, investors will want to maintain maximum flexibility when obtaining financing, so that they can be in a position to take advantage of the opportunities that may come with the start of the next cycle. One of Alliant’s hallmarks is our ability to allow investors to take advantage of today’s low rate environment by providing long-term debt, while simultaneously giving them optionality in the future by not restricting them with a hefty yield maintenance fee.

Q: We understand industrial and self-storage assets are among the property types Alliant is tracking closely. What makes those asset classes attractive as an investment, what do you look for and can you cite an example that reflects the market reality?
A: Industrial and self-storage assets are two of our preferred asset classes at the moment. Considering recent economic headlines, trade disputes, and housing trends, we feel that both of these asset classes are positioned to continue outperforming other asset classes. Industrial and distribution assets are taking advantage of the continued trends in online shopping, including the war between mega-retailors such as Target, Walmart, and Amazon. Online retailers are trying to shorten delivery timeframes, thereby needing more and better-located industrial assets. The trends of population-centric industrial assets goes beyond distribution.

We recently closed on a loan for an industrial property in Dallas, TX. The tenant provides network services and warranty repairs for a variety of telecom companies. Being well-located near transportation routes and close to major population centers is key for that tenant, as they need to be able to execute the repairs and return products in a timely manner.

In the case of self-storage assets, home affordability is at an all-time low, causing millennials to rent smaller apartments for longer. Additionally, aging baby-boomers are downsizing into smaller units and transitioning out of home ownership. As millennials form families and baby-boomers move into smaller units, there will be a continuous need for storage assets where people can conveniently and easily access their belongings. Self-storage assets are traditionally sticky assets, where once people store their belongings there is a strong inertia to keep belongings in one place rather than constantly moving to search for the best deal.

For comments, questions or concerns, please contact Dennis Kaiser