Mid-Year Market Update from MBA of NY Summit

Take-Aways from the MBA of NY’s 2nd Annual Commercial Real Estate and Lending Summit

Last Thursday, the Mortgage Bankers Association of NY hosted its 2nd annual Strategic Real Estate & Lending Summit at the Affinia Hotel in New York City. I was fortunate to moderate a panel of leading economists in a track titled, The Future of Commercial Real Estate Lending in an Uncertain Market. First off, I’m grateful to each of these panelists for accepting my invitation to share their unique perspectives on the market at the event kickoff:

heidiHeidi Learner, chief economist with Savills Studley

 

 

ericEric Lewis, the executive managing director and practice lead of the Hospitality & Gaming group at Cushman & Wakefield

 

 

ryanRyan Severino, senior economist and director of research in the research and economics department at REIS, Inc.

 

Slow Start to 2016: “Fundamentals Still Strong”

It’s hard to believe, but we’re almost at the mid-year mark. Suffice it to say, the panel put the audience of lenders and brokers at ease that the slower-than-expected start to 2016 should not be interpreted to mean anything is inherently wrong with the market. Below is my list of take-away’s on the state of the market with attribution to my panelists.

dianne

  • Demand for bank loans on commercial properties is there, but there’s been a tightening of underwriting beginning in October of last year. That been a fundamental change in the market of late. (Lerner, see graphic below)
  • “In capital markets, the debt markets went sideways this year, and total loan originations were flat year-over-year in 1Q. The retail sector had the largest increase in originations of 44%, followed by office with an 18% increase, while industrial originations were down 56%. (Lewis)

lendingstandards

  • The CMBS sector got off to a slow start with only 23 deals YTD in 2016, most of which are collateralized by office properties in major metro areas.

    “As of April 21st, U.S. CMBS issuance totaled $20.3B, lagging 40% behind 2015 year-over-year. The hiccup in pricing early in the year and some general concern about how deep the bond buying market is for CMBS led to the significant falloff in origination. This is viewed as a temporary pause by sellers as evidenced by the emerging bid-ask spread developing in less favored markets and property types.” (Lewis)

  • “While there was concern two years ago about the ‘Wall of Maturities’ coming due 2016-2017, many of those loans were refinanced early, paid off or were high quality assets with financing available from banks and insurance companies in light of the CMBS volatility.” (Lewis)
  • “Generally speaking, property markets are healthy and more disciplined this cycle. CBD office is expected to fare the best largely because of millennials and the move by companies to attract young talent.” (Lewis)
  • Transaction volume saw a saw-tooth pattern largely from seasonality. I’m hearing investors getting more cautious about what they’re willing to pay.” (Severino, see graphic below)

transaction

  • The apartment sector has been the darling in recent years, but in some metros like Portland, Seattle and San Francisco, the bloom isn’t off the rose but starting to fade a bit.” (Severino)
  • “A lot of the good deals have already been bought up. Sellers’ expectations on price are still at 2015 high’s so there’s a bid-ask spread as prices have softened since then.” (Lewis)
  • Industrial sector hot spots used to be led by southern California and Texas. Northern NJ is still a top five market, but others like Nashville, Portland and Orlando are infiltrating the top five as the rift between the stronger and weaker metros narrows.” (Severino)

Looking Ahead to 2H16 and Beyond: “Recession is not imminent”

  • “The new round of risk retention requirements means we can “expect to see more issuance in the run up to the December effective date.” (Lerner)
  • “As for the overall market, certainly bank regulators are asking more questions of banks, but as long as the economy remains on the right track, recession is not imminent. You have to ignore the minor blips and look at the broader general trend. The outlook for CRE is relatively bright, but political risk is a real wild card.” (Severino)
  • “As the economy firms, investors are actively “expanding the bulls eye” for acquisitions, looking at select secondary markets across most property types in search of higher yields.” (Lewis)

Congrats to Our Conference MVP

I would be remiss if I didn’t also take this opportunity to congratulate my EDR colleague and Marketing Director for Lending Solutions, Gary Kulik who received the well-deserved Conference MVP Award. Presented by Art Saitta, Conference Chairperson and Assistant VP of Ridgewood Savings Bank:

“When you think of an MVP, words that come to mind are committed, a team player, enthusiastic, the core of energy, focused, and always keeping the goal in mind. This conference has an MVP who deserves to be recognized, and his nickname, “The Nuc,” is very appropriate. Like a nucleus, Gary Kulik is the center of the planning committee, a driving force that directs ideas, but is always completely respectful of other team members, and is truly like a nuclear explosion—full of unbridled energy. Please join the MBA of NY and the Conference Committee in recognizing Gary Kulik as our MVP.”

Congratulations to Gary, pictured here with MBA of NY’s President, Justin Angelo (L) and Art Saitta (R).

gary

FOR MORE INFORMATION

For more coverage from the 2nd Annual Commercial Real Estate and Lending Summit, read Gary Kulik’s brief.

If you work in the NYC metro area, additional events in the works with the MBA of NY are posted here.