KeyBank’s Great Lakes team is helping clients navigate a turbulent market

Commercial real estate borrowers are acclimating to a new capital climate. And while this transition has been challenging for many, the professionals at KeyBank Real Estate Capital are well-equipped to ease the burden and provide guidance through this cycle.

In the Great Lakes region, Dan Baker, head of commercial mortgage production, and Jake Proctor, senior vice president, are doing just that. Under Baker’s leadership, Proctor directs a team of mortgage bankers to develop strategic capital solutions for clients based on a thorough analysis of specific portfolios and assets. With a combined 45-plus years of experience, Proctor and Baker have seen multiple market dislocations and understand the nuances shaping the current environment. Armed with fresh analysis of current market metrics and trends, they routinely meet the capital needs of their clients and are pushing deals across the finish line every day.
 

Navigating an evolving market

Every market dislocation is unique. During the Great Financial Crisis, a mortgage bubble diminished lending activity and reduced market liquidity. Today, the dynamic is much different. While there is liquidity available, interest rate volatility has created widespread uncertainty, stalling new transaction activity. “We are not going to see stability until we see stability in the rates,” says Baker, EVP and leader of KeyBank’s Commercial Mortgage production team. “Until then, both buyers and sellers are going to stay on the sidelines. The volatility is making investors wait.”

Overall, interest rates are 150 to 200 basis points higher than in 2022, and they may continue to climb. Adding pressure, many banks are focused on strengthening their loan books, and they are being highly selective about the loans they put on their balance sheets. “There is liquidity in the market, and we are able to get loans done, but it is with higher rates and more conservative underwriting,” says Baker. As a result, most borrowers looking to secure debt today are doing so out of necessity, because they have a loan maturity coming due.

Although these are new challenges, the broader commercial real estate market is stable, and interest rates have not exceeded long-term historical averages. “The fundamentals are still pretty solid today,” says Baker. “That is why you aren’t seeing as much distress as people had expected.”
 

Finding the right strategy

Sophisticated real estate investors understand the current dynamic, but the challenge lies in determining the best path forward. Proctor says that strategic planning can mitigate the impact. “We are in an interesting time period given the rate movement over the last 18 months,” says Proctor, SVP for KeyBank’s Great Lakes region. “It’s created some dislocation, but it has also created some opportunities. We work with very experienced owner-operators and most of our clients are well-positioned to take advantage of an evolving market.”

As the 10-Year Treasury stabilizes, Proctor expects that deal flow will increase and more opportunities will surface for clients to make profitable moves. “We want to make sure that our clients are ready from a debt standpoint to jump on opportunities that are going to appear,” says Proctor. That includes analyzing client portfolios, reviewing upcoming maturities, and evaluating potential acquisition or disposition opportunities to rebalance the portfolio. Alternatively, Proctor might also look at options to extend a loan term to provide some breathing room while the markets restabilize. His team reviews every option on an ongoing basis to create a game plan, respond to market movements and meet the client’s capital goals.

This collaboration is the cornerstone of relationship banking, a core philosophy of KeyBank. “We are in constant communication with our clients to discuss market trends and strategy,” says Proctor. “We are always looking for ways to assist our clients to meet their objectives.”
 

Leaning on experience

Rising interest rates, tighter lending standards, and broad economic uncertainty have clearly spooked investors but leaning on a team of experienced financial advisors can illuminate a path forward. KeyBank’s broad platform ensures clients have all options at their disposal. In addition to balance sheet banking, KeyBank also offers financing solutions through Fannie Mae and Freddie Mac, CMBS, debt funds, life insurance companies, and other sources. “We are able to pivot to where the opportunity is for financing,” explains Baker.

The experience of the team ensures they know exactly where and how to pivot. Proctor, who was recently promoted to team lead for the Great Lakes region, has a decade of experience at KeyBank alone and a deep understanding of client business. “His expertise is a huge value-add to our clients,” says Baker. “They know him, and they trust him, and they know he has their best interests in mind.”

He also has a keen understanding of market trends. Last year he advised several clients to secure five-year fixed-rate money. At the time, rates were rising, and the coupon didn’t look appealing. As rates continued to climb over the past year, the benefits of this approach became very clear. “Today, those sponsors are thanking us,” says Proctor. “We just want to stay on top of it. Communication is always the most important thing to us, and that is how we will navigate going forward.”

Adapting to new market conditions is never easy, but with the right team in place, investors can gain a better understanding of their position in the market, develop a strategy, and take advantage of new opportunities.

To discuss the current market environment and what financing options are best for your next project, reach out directly to Dan Baker and Jake Proctor. For more information, www.key.com/rec.