2014: A Good Year for Commercial Real Estate Lending
A steadily improving economy, stepped-up bank activity and continued low interest rates all bode well for the lending environment.
WASHINGTON, D.C. – January 29, 2014 – (RealEstateRama) — It’s going to be a good year for the commercial real estate finance markets. While there are still some bumps in the road that leads to complete recovery, the signposts point increasingly to a clear path ahead. That was the upshot of the recent roundtable held by the Washington, DC-based Commercial Real Estate Finance Council (CREFC). The discussion appears in the most recent issue of the association’s CRE Finance World magazine.
“The market outlook across all lending sectors – CMBS, banks, life insurance companies, private equity and Fannie and Freddie – continues to improve,” reflects CREFC President and CEO Stephen M. Renna. “Last year was a significant step forward from 2012 levels. The outlook for 2014 is equally optimistic, if not more so. The markets are gaining momentum as evidenced by the increasing number of new players entering the market flush with capital and heightened competition amongst lenders.”
The session was moderated by Brian P. Lancaster, President of the Minot Group LLC. The panelists were:
Dan Bober, Executive Vice President, Wells Fargo Bank;
Ed Glickman, Executive Director of the Center for Real Estate Finance, NYU Stern School of Business;
John Mulligan, Managing Director, White Mountain Advisors LLC;
Josh Seiff, Director, Multifamily Capital Markets, Fannie Mae;
Jon Strain, Managing Director, JP Morgan;
Richard Walsh, Managing Director, NY Life Real Estate Investors; and
Randy Wolpert, Principal, Eightfold Real Estate Capital.
“My view for 2014 is that we will have relative stability in the property market,” noted Glickman. “I don’t see interest rates rising rapidly, and certainly not rising to the extent that they are going to significantly impact cap rates. It’s still a good opportunity for purchasing properties in 2014 because the financing rates are reasonably low and you can lock in a long-term spread.”
Walsh added that prime investment opportunities will lie in secondary markets, given that “primary markets are pretty much overbought.” He cited Minneapolis, Miami and Atlanta as prime recipients of this shift in geographic focus.
And this shift should solidify a broader market expansion for CMBS since, as Strain added, “CMBS has to lend where people want to be. We’ll even go to tertiary markets if the leverage is right.”
Adding fuel to the positive outlook is bank activity, and Walsh reports that insurance companies “saw little [lending] competition from the banks in 2011 and 2012.” But they’ve returned with a vengeance. “Over the past six months banks have not only come back into the market but have compressed pricing substantially. If they want a deal, they’re going to win it.”
The rating agencies in recent years have been a topic of concern, and the panelists report that even in this arena, there seems to be a movement toward standardization, at least in terms of information requests. While primarily a servicer issue, Bober noted that the change would have widespread implications.
“As a result of the crisis, there was a doubling of the rating agencies and a lot of variability in the information that they seek from all the master and primary servicers,” he said. “As a result, there were six different opportunities for the agencies to take the same basic information and call it something different.”
He reported that agencies and servicers have begun to work together to achieve some commonality among all involved parties. “Ultimately, the outcome should be better transparency.”
On the GSE front, Seiff predicted “a very strong year”. In 2012 Fannie and Freddie logged a record combined volume in excess of $60 billion. A regulatory mandated 10% volume reduction trimmed 2013 volume to $55 billion.
The question remains whether regulators will mandate another round of GSE volume reduction for 2014, Seiff reported. Nevertheless, in 2014, he expects “both agencies to be inside 90% of that 2012 number. The total will be in the low $50-billions.”
Other challenges face the lending sector in 2014, and the panelists touched on such potential pitfalls as the ongoing question of credit-quality, Fed tapering of quantitative easing and the expected final outcome of risk-retention regulations.
But it was clear from the overall tone of the conversation, that the scales are tipping in favor of optimism. Or, as Walsh concluded, “It will be a good year.”
Please click here for the full text of the Roundtable
About CRE Finance Council
The CRE Finance Council (CREFC) is the trade association for lenders, investors, and servicers engaged in the $3.1 trillion commercial real estate finance industry. More than 250 companies and 5,500 individuals are members of CREFC. Member firms include commercial banks, insurance companies, private equity funds, mortgage REITs, investment grade and B-piece buyers, servicers and rating agencies, among many others. CREFC promotes capital formation, encouraging commercial real estate finance market efficiency, transparency and liquidity. In addition to its Member Forums, committees and working groups, CREFC acts as a legislative and regulatory advocate for the industry, playing a vital role in setting market standards and providing education for market participants in this key sector of the global economy. For more information please visit www.crefc.org .
Contact: Alex Levin (202) 448-0854