2014 Forecast: Entering the 2nd Half Of Market Recovery


Published on

Current stats on commercial real estate deals, metros to watch in the year year, lending trends and risk tolerance as we head into 2014.

Presented by Dianne Crocker, Principal Analyst, EDR Insight
EBA RMC monthly call, January 2014

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

2014 Forecast: Entering the 2nd Half Of Market Recovery

  1. 1. EBA Monthly RMC Call 2014 Forecast: Entering the 2nd Half Of Market Recovery By: Dianne Crocker, Principal Analyst EDR Insight January 8, 2014 © 2014 Environmental Data Resources, Inc.
  2. 2. Market in Transition 2008 2009 2010 2011 2012 2013 2014 Survival Mode True start of market rehabilitation Year of refocusing and repositioning
  3. 3. View of Market: 50,000 Feet Y-on-Y Growth, 2013 (preliminary) CRE Lending -SBA Lending +14% + 9% Property transactions: -Large +27% -Small (<$5M) +18% -Portfolios +20% CMBS Issuance +46% Phase I ESAs +14% • All debt spigots are open. • Growing investor confidence. • More diversity in lenders, investors. • Activity across broader spectrum of properties. • Improving property fundamentals.
  4. 4. Large Commercial Real Estate Deals Up • By 3Q13, deal flow up 27% in 3Q YTD • Nov up 15% YonY • Poised for healthy finish to the year
  5. 5. Headline Makers on Major Property Deals
  6. 6. Recent Trend: • The universe of buyers is growing rapidly • The number of active buyers over the past twelve months grew by 3,300 participants with the private sector seeing the greatest growth. • A number of new investors from Asia and Europe are also growing in influence.
  7. 7. Small Cap Transactions • The velocity of small-cap sales is more than keeping pace with the larger CRE investment market. • Up 17% YTD (3Q13) • Transactions continue to grow at a faster clip in bigger cities than smaller ones.
  8. 8. Property Types in Favor • Multifamily is still the “belle of the ball” (up 31% Y-on-Y) • Retail: sales of strip centers are up 30% • Office/industrial getting more interest • Warehouse activity, especially in port cities
  9. 9. Geographic Spotlight
  10. 10. Good News on the CMBS Front • 2012: • Post-recession high of $48B • 2013: • Prelim #s: $80B in 2013 • Up 65% YonY • 2014 Forecast: • Same or better
  11. 11. Banks’ Sell-off of Nonperforming Assets
  12. 12. Commercial Property Lending Volume • Lenders have returned to originating commercial real estate loans as values and credit quality improve and demand increases • Commercial and multifamily real estate borrowing and lending continued at a moderate clip in the third quarter. • Origination volumes: • 29% higher than in Q3 2012 • Flat compared to 2Q13 • Up 14% year to date Source: MBA’s Quarterly Index of Commercial/Multifamily Mortgage Bankers Originations.
  13. 13. LENDING: A Positive Take “More banks were lending on incomeproducing commercial real estate properties in more places in the 3rd quarter. The number of lenders who plan to increase property loans in next 12 months far outnumber those who plan to lower them.” ~ Sam Chandan, president and chief economist at Chandan Economics
  14. 14. Lending Leaders: CRE Page 14
  15. 15. SBA Lending: A Bright Spot • Supported more than $29B in loans in FY13—its third-highest year ever. • More than 54,000 loans backed through its 7(a) and 504 programs • The number of 7(a) loan increased to 46,399 in 2013, 4.6% over the number of loans in FY 2012. • The 504 loans produced more than 7,700 loans in FY 2013, a slight decrease from FY 2012. • 7(a) lending is picking up steam after being halted by the government shutdown. (down 7% in 4thQ)
  16. 16. Bottom Line on Lending • The comeback of commercial real estate lending is gaining momentum, especially credits backed by apartments and leased properties. • CRE lending was a scourge for scores of community banks during the financial crisis, but more banks are warming up to it in their quest for higher returns. • However, CRE lending volumes remain well below the highs of six years ago.
  17. 17. APPROACHES TO ENVIRONMENTAL RISK MANAGEMENT © 2014 Environmental Data Resources, Inc.
  18. 18. Banks and Risk Management • 94% of institution’s boards now devote more time to risk management oversight than five years ago • 80% percent of chief risk officers report directly to either the board or the CEO Source: Deloitte lender study
  19. 19. Attitudes Toward Risk • Phase I ESAs more likely to go to a Phase II than in past years • 16% vs. 6% 2 years ago • More attention on environmental policies by financial institutions. • Investors, lenders as risk conscious as ever.
  20. 20. Upshot for 2014 • Real estate should put in strong performance in 2014 • U.S. economy shows signs of strength • CMBS lenders, insurance lenders and bank lenders will all be active • Expect to see growth from commercial mortgage funds with 3rd party capital • 2014 marks the 2nd of the market’s recovery • Modest growth
  21. 21. Dianne P. Crocker Principal Analyst, EDR Insight Research and Analytics: www.edrnet.com/EDRInsight Twitter: @dpcrocker Email: dcrocker@edrnet.com