CRE Economic Report and Property Sector News You Need To Know | CMBS and Bridge Loan Rates From Liberty SBF

April 6, 2015

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CRE Economic News

Standard & Poor’s has seen its volume of business double since the SEC banned it from rating some commercial mortgage-backed securities. S&P rated $8.7 billion in transactions up to March of this year, which is up from $3.9 billion a year earlier and $7 billion in the previous period, according to data compiled by Commercial Mortgage Alert. What’s going on here? According to an article on Bloomber.com, there has been a surge in issuance of single borrower CMBS, the kind that the ban doesn’t apply to and the type that S&P has been the largest grader anyway. “Wall Street created the most securities of the type since the financial crisis last quarter, with volumes more than doubling,” reported the news agency. Morgan Stanley analysts Richard Hill and Jerry Chen wrote this week in a report that the market is on track for “robust issuance growth” in 2015.

In that vein, the S&P reported that as the volume of single-borrower CMBS issuance has gone up, so have loan-to-value ratios and credit enhancements, according to GlobeSt.com. There is also a shift toward interest-only loans. “Full-term IO loans have become par for the course in single-borrower deals in recent years,” according to S&P. “All 14 of the Standard & Poor’s-rated offerings in the first quarter were backed by full-term IO loans.”

Foreign investors looking to invest in commercial real estate here in the U.S. don’t necessarily have to bring boatloads of cash to the table. Banks have been willing to extend financing to foreign investors lending institutions have become more comfortable underwriting their credit risk, according to a story on Gloest.com. Foreign investors have gotten used to having to pay in cash but some are seeing the advantage financing debt to lock in low rates and leverage their equity.

The dollar’s surge could delay the Fed’s decision to raise rates, said The LA Times. The dollar’s “steep ascent against many of the world’s currencies since last summer” could help delay the first Federal Reserve rate hike since 2006 that could affect mortgage and other long-term rates. Under Chairwoman Janet Yellen, the Fed has made clear that the dollar is on their minds as they consider what to do with rates. A few months ago, many economists expected the Fed to begin raising its benchmark short-term rate in June from near-zero levels. Now most analysts doubt that the Fed will order its first increase before fall. “The move in the dollar has been so big they can’t ignore it”, said Ethan Harris, co-head of global economics at Bank of America Merill Lynch. “They have to think about the shock to the economy.”

Property Sector News

Office occupancy has hit an all time high in the U.S., according to an article on City Biz List. A report by CBRE Research Group showed that annual tenant demand, measured by net absorption, totaled 52.7 million square feet in 2014—the highest annual amount since 2007. Downtown markets across the country saw their highest annual total since 2006 with 21.1 million square feet of positive net absorption. Colin Yasukochi, Director of Research at CBRE said that “the short term outlook is for high tech, financial services and government to be the most active industries leasing office space. As supply is slow to respond to this growing demand, tenants can expect to see rising occupancy costs, which will compel many to consider ways to achieve more efficient footprints through workplace strategy, or to explore lower cost sub-markets.”

Retail’s recovery is gradually gaining traction. Part of that reason is because of the state of the labor market in the U.S. Chief Economist at REIS, Ryan Severino, says “2015 could be the best year for labor market performance since the late 1990s. The quality of the jobs being created continues to improve which means higher incomes and higher income growth. Cheap energy prices should continue to be a boon for most consumers as they adjust their behavior to correspond with structurally lower oil prices in addition to structurally lower natural gas prices.”

Self-storage is a sector that’s starting to attract new investors, according to CEO of Smart Stop Self Storage Jeff Schwartz. Schwartz says that self-storage has had a very solid run from the Great Recession to where we are today. “We saw very strong overall NOI growth on top-line and smaller regional operators and saw some positive trends. In 2015, we see nothing but overall strength in the self-storage market,” he said. Development in self-storage is also picking up, but will not really affect the sector in 2015 or 2016. The fundamentals of self-storage are strong, there are high occupancies and the larger platforms in bigger companies are good. This positive performance from the sector is starting to draw more interest from everyone from private equity shops to public companies.

Hotels deals will see more growth in 2015 thanks to the improving “economic fundamentals and limited new supply coming on line,” according to an article on GlobeSt.com. Lodging Econometrics predicts that sales transaction volume for lodging properties will continue growing for at least the next three years. Trailing twelve month RevPAR growth has been positive for 54 consecutive months as of February and Fitch expects further RevPAR gains over the next two to three years based on its review of the key lodging cycle leading indications.

8+1 (That’s 9) Stories You Need To Read In CRE Right Now

• 3 myths about quantitative easing

• U.S. CMBS delinquencies edge lower in March

• Office property lands 90% LTV financing

• 5 TED talks for real estate

• Bridge loan for Vegas tower

• Multifamily investors target Indiana

• Historic Dallas buildings, then and now

• San Francisco Commercial Real Estate at New Heights

• Surge in multifamily development over the next year


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