What bubble? JPMorgan’s CMBS desk doubles down on construction lending

Expansion comes a bank’s commercial division grows cautious

The Real Deal - Konrad Putzier - December 12, 2016

JPMorgan’s CMBS trading desk quietly emerged as a major construction lender in Greater New York, taking a leading role in at least $2.7 billion in loans in recent years.

The increased lending activity by the bond group comes as the bank’s commercial banking unit, which usually issues construction loans, is growing more cautious on riskier real estate financing.

JPMorgan’s investment bank is the lead lender on a $1.5 billion construction financing for the American Dream mall in New Jersey, Bloomberg reports. It also issued a $500 million loan in partnership with Oaktree Capital to HFZ Capital  to fund the condo conversion of four rental properties. JPMorgan’s CMBS desk also lent $505 million for the Times Square Hotel project.

“They are very careful and conservative in the risks that they are willing to take,” said Peter Sotoloff, of Mack Real Estate Credit, which provided the mezzanine financing for the Times Square Hotel, told Bloomberg.

CMBS lenders don’t normally issue construction loans because they are hard to package into bonds. That helps explain why JPMorgan’s real estate bond trading desk isn’t actually turning its construction loans into bonds, but rather keeps 10 to 40 percent of their value on its books and sells off the rest directly to investors.

“Non-CMBS loans make up a small fraction of our business, but if an opportunity comes along where we can help finance a project for a client in a smart and thoughtful way, we’re going to do it,” a JPMorgan spokesperson told Bloomberg.

The investment bank’s new focus on construction lending comes as commercial banks increasingly pull out of the market amid fears of oversupply, particularly in the hotel and condo markets. [Bloomberg]