While benchmark interest rates are expected to rise in 2015, a new survey shows that most real estate executives are not as worried about interest rate increases as they are confident in the Federal Reserve’s ability to manage any increases in a thoughtful manner.
“Industry participants see another year of positive growth for commercial real estate debt markets as ample capital and credit should be available to meet borrower demand and pending loan maturities,” said CRE Finance Council President and CEO Stephen M. Renna.
“This is buoyed by stronger overall economic growth and a trend of improving property fundamentals.
“However, for growth to be sustained it is critical that the industry demonstrate underwriting discipline in the face of abundant capital and heightened competition.”
According to the survey of Commercial Real Estate Finance Council members released on Monday, members expect loan volumes in 2015 to top those in 2014 as loan maturities rise and property fundamentals improve.
Survey respondents expect the U.S. commercial real estate finance market in 2015 to be quite healthy, buoyed by strong investor demand, rising loan maturities, relatively low levels of new construction and improving property fundamentals.
Overall commercial real estate market liquidity is expected to stay the same or expand in 2015. 47 percent believe there will be more liquidity available in the marketplace for commercial real estate in 2015.
Underwriting is predicted to be more aggressive based on higher valuations and higher leverage, with potentially somewhat lower credit quality.
On the lender side, demand drivers include the potential for attractive risk-adjusted returns and fundamentally sound real estate market conditions. On the borrower side, demand drivers include the low cost of financing, economically justifiable real estate market activity including some new development, and the continuing wave of maturing CMBS.
Renna cautioned that the industry will see a series of new regulations on banks and commercial mortgage lending come into effect in the next few years. These rules ultimately will make commercial real estate lending more costly and potentially dampen the market.
In the near term, Congress’s inability to extend the Terrorism Risk Insurance Act beyond December 31, 2014 surprised the industry and could chill transactions if not resolved early in 2015. TRIA provides a federal backstop against potential losses from terrorist attacks.
The survey also found that 76 percent of survey respondents believe lenders will be “more aggressive” in 2015.
70 percent of survey respondents expect new CMBS issuance in 2015 to be in the range of $100 million to $125 million; 89 percent expect balance-sheet lenders to originate more loans in 2015 than in 2014.
69 percent of survey respondents expect private capital (nonbank) sources to originate more loans in 2015 than in 2014.
The CRE Finance Council (www.CREFC.org) is the trade association for the commercial real estate finance industry globally. It serves participants in all aspects of the commercial and multifamily real estate finance market, including conduit lenders, investors and servicers of commercial mortgage-backed securities (CMBS), bank and life insurance company lenders, private equity lenders and investors, and government-sponsored enterprise (GSE) lenders.
The U.S. market for commercial real estate debt is $3.3 trillion.