CMBS Issuance Up But Not Increasing Market Share [News]

March 24, 2015

An annual report produced by Integra Realty Resources (IRR), a commercial real estate market research firm, showed the state of the market in 2014 and looked ahead to 2015. The publication (available for download here) highlights CMBS saying that while issuance in 2014 was up, the industry didn’t increase market share overall in CRE financing. Commercial banks and private financial institutions gobbled up more market share than CMBS. Insurance companies gave up ground and the government willfully cut back financing as the economy improved. One place CMBS did shine was in the retail and lodging sectors.

So who is the big player in CRE investment and finance? According to Costar, it’s private money. Private equity firms are very aggressive in purchasing commercial property and very active lenders. Pushing aside banks, firms like American Realty Capital, Blackstone Group, Colony Financial, Northstar Realty Finance and Starwood Capital have originated more than $1.8 billion in CRE loans in the last five months alone, according to the Costar report.

Salt Lake City saw some growth in its commercial real estate market, according to the IRR report. Deseretnews.com reported that the office sector in that city exceeded the national average in market rental rates in the downtown central business district. The multifamily market there also say expansion with decreasing vacancy, lots of new construction and slight increase in rental rates. The retail market in Salt Lake City was still in recovery mode but remained steady in 2014.

Foreign money is in the mix as well, with investors across the border looking to go deeper with their dollars by putting money into markets outside of the core gateway cities, according to Costar. One recent deal for a Singapore-based investor put together a portfolio covering 117 million square feet of logistics properties across 29 different U.S. cities worth for a reported $8.1 billion.

In an article by National Real Estate Investor, commercial property values have continued to climb up. Moody’s reported that in the first month of the year, its national all-property composite index rose by 2.1 percent, while the 12 month jump in values totaled 14.6 percent. Commercial property prices are now about 5 percent above their 2007 peak, according to Moody’s reports.

In an article by Chicago Real Estate Daily, the pile of bad commercial real estate debt “has melted away like a snowbank in March.” The delinquency rate for bank loans secured by income producing real estate in the greater Chicago area fell to 2.3 percent in the fourth quarter. The last time the local delinquency rate was below 3 percent was back in 2007. “Finally it’s feeling like the recovery has taken hold and we are pretty close to a full recovery position and ready for more of a growth mode”, said Trepp Managing Director Matthew Anderson. Chicago’s delinquency rate is the fourth-highest among the largest 100 U.S. metropolitan areas.

The expectation in economic circles is that after QE started to end last year the Feds would turn to raising its benchmark rate in mid-2015 but a recently released statement hints that might not be the case after all. Looking at unemployment rates and slow wage growth, the Federal Reserve said a rate hike might not go into play until later in the year as opposed to June, when most economists predicted.

According to an article on App.com, the danger in tightening policy too much or too soon is that it might drive many “weak international borrowers to the wall”. In the U.S., tighter money risks damaging credit-sensitive sectors, led by housing and vehicles. It could also prompt a pre-emptive sell-off in the bond market, which would almost certainly affect the stock market. At this point, however, “investors need not make market-disruptive changes in their portfolios. Money will continue to be cheap.”