ULI Charlotte’s Capital Markets Council’s mission is to engage each member on substantive capital market trends and larger financial issues that affect each of us individually and our industry more broadly. We structure the content to facilitate two-way conversations with the Federal Reserve Bank of Richmond. The key to success of the Council is rich dialogue among senior-level industry experts.

On October 12, 2017, the council of 25 ULI members met at the Charlotte Branch of the Federal Reserve Bank of Richmond.  Following a fireside chat with Matt Martin, the Federal Reserve’s regional executive responsible for North and South Carolina, a roundtable discussion ensued around two questions.  Below are the responses from the participants.

1. What are you seeing in the shadow banking arena (non-traditional lenders, crowdfund equity or debt, etc.)?

• Developers aren’t using “non-traditional” lenders and institutional owners.
• Debt funds add liquidity in acquisition.
• Crowdfunding a non-factor.
• Shadow Banking-growing influence of private equity capital; compression on cost of capital between traditional; enabled by banks providing repo lines, lack of any regulation despite ever growing influence; inject liquidity but perhaps risk.
• Crowdfunding- lender of last resort; couldn’t get financed otherwise; limited in scale; expanding the country club; potentially enables investors to be taken care of.
• Not regulated financial intermediaries.
• Very active-specifically debt funds are exploding.
• Shifting equity down to preferred equity as banks have decreased leverage, more mezz type equity is filling the gap.
• As banks contract CRE, debt funds replaced, they are un-regulated.
• “Country Club” money raising is back in action/very active.
• Debt funds/non- regulated (mezz & preferred) are trying to get into NC markets.  But expensive and participants are new.
• Mezz, unregulated has entered and sizable in Multi Family Development.

2. What risks do the table participants see relative to the local Carolinas markets — whether at the local, regional, national, or international level?

• Retail-less worried about macro-economy>disruption impact.
• More focused on Amazon’s of the world impact on Park Road SC.
• Sales (tenant)growth- clearly soft.
• Lidl, Aldi, Walmart impact broader grocery sector.
• Tenants asking to reset rents in some cases.
• Deals are taking longer to get done- Is that a function on overly cautious users?
• Looking for the risk, but difficult to see anything on the horizon.
• General optimism.
• Price escalations/inflation with little ability to pass through to end users.
• Healthy/modest growth in Carolinas.
• Conversation on HB2 has decreased-momentary dip but back to where we should have been.
• Can we keep pace on infrastructure? Airport is an advantage.
• Charlotte mix of job growth is more balanced with high & low income.
• Relative lack of single family housing affects demands for apartments.
• Concerns about quality of construction- labor shortage.
• Labor is an issue; but not able to change more rents.
• Commodities seem ok; concern; but not for our table.  Not expecting big drywall, lumber increase.
• Disparity is metro areas vs. rural/non- metro areas (Charlotte vs. High Point).
• Concern on political (NC) level to have redistributes outside of Charlotte.
• Some concern on CRE lending and lack of competitiveness for loans.  You get fewer quotes and lenders now have limitations on exposure (i.e., too much Multi- Family).
• HB2 affected offer relocations to city; now “NC is back in business” is getting out.
• Banks seem to be at fully capacity in Charlotte; fill employment.
• Charlotte does have international money coming in; that could change with economic & international uncertainty.
• Concern on airport terrorism issue, given how important CLT airport to economy.

Participation in the ULI Charlotte Capital Markets Council is by invitation only.  Click here for more information.