Marcus & Millichap Capital Corporation is finding its advisory and capital sourcing services are in higher demand as capital providers are dialing back lending efforts due to increased market volatility.
“We have just dug our feet in deeper to make sure our clients are getting the best possible outcome”
Marcus & Millichap Capital Corporation
Evan Denner, executive vice president and head of business for the Calabasas, California-based capital solutions provider, says some lenders are hitting the pause button or dipping in and out of the market as interest rate hikes, inflation and hesitancy from a potential recessionary environment take their toll. The shift, however, hasn’t changed the firm’s core approach.
“For us, it is really business as usual,” Denner says. “We have just dug our feet in deeper to make sure our clients are getting the best possible outcome, and whether that is proceeds, whether it is structure, whether it is carve-outs, we are just having to dig in more.”
The firm is seeing differing amounts of liquidity from different types of lenders. Denner notes that lenders who tap warehouse facilities, finance themselves through the CLO market and use other securitization markets are having a more difficult time navigating the market compared with their banking and credit union colleagues.
“The other thing that we are finding is a lot of borrowers that had and have direct relationships with capital sources are now calling us much more because either their lender said ‘We are out, we are sitting on the sidelines,’” Denner says, noting in some cases loan provisions are also shifting to more defensive approaches. “This is just market volatility and lenders are doing what they have to and really what they should be doing. I understand why and it just means we are working harder on the weekends.”
Compared with six months ago, M&MCC is seeing more credit departments slowing down or hanging out on the sidelines to wait out the volatility. Denner says the gyration in and out of lending can unintentionally cause angst among originators, prospective clients and borrowers.
Denner says the fundamentals of the commercial real estate debt landscape have to be separated from the financial markets themselves, noting generally fundamentals from 90 or 120 days ago to today have not changed much.
“[For] the asset classes that were in favor four months ago, very little has changed, and [for] the asset classes that were out of favor, four months ago, little has changed,” Denner says. “What has changed is that when those assets are trading at very tight cap rates and rates have moved the way they have moved, now the deals start to make less sense or no sense, but it is not the fundamentals that changed, it is the pricing.”
M&MCC has ratcheted up its client engagement in order to help mitigate any uneasiness stemming from the changing environment. Denner says his team is working more weekends and connecting with clients when they have downtime to chat about the markets as opposed to specific transaction activity.
“We have a lot of prospective clients now reaching out and asking for advice and [for us] to represent them because they are in the middle of an acquisition, they have got money hard, they have to close and they need us to make and clear the market for them immediately,” Denner says.
Outside standard business, Denner explains that M&MCC is active in hiring mid-level and experienced originators across the country to stack its talent pool. The firm is also interested in acquiring capital markets and advisory companies to fuel additional growth. “Our strategy, in terms of how we work with and represent clients, has not changed and our growth strategy also has not changed; you have to just work through the volatility.”