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Due Diligence at Dawn CRE Market Update
The CRE market is seeing slowing growth with fewer large portfolio deals and construction starts hitting a cyclical peak. While small deals are holding pace, secondary markets are becoming more popular. Lending is becoming more cautious as underwriting standards tighten and regulators emphasize concentrated risk management. The Phase I environmental market in New York is progressing along the long top of the recovery, mirroring national trends, with Brooklyn and Long Island City becoming attractive alternative office locations to Manhattan for technology companies. There is growing pressure on the industry to increase efficiency and speed while maintaining or improving quality as clients rate turnaround time and price as important factors in selecting providers. The near-term market forecast expects transactions to decline over the next two years with modest lending growth
Due Diligence at Dawn CRE Market Update
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- 2. US EconomyandCRE 2016 looksmuch like it did in 2015—with somewhatless impressivenumbers
- 3. CRETRANSACTIONS:SmallIs Big ▸Rate ofgrowthis tapering off ▸Fewer portfolioshurt large cap deals ▸Small deals holding pace ▸Secondary metrosin vogue…
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- 6. “▸“It’s at thisstage of the cycle that we also see strong loan growth combined with easing underwriting to result in increased credit risk. CRE portfolios have seen rapid growth, particularlyamong small banks, and concentrationrisk management hasbecome an area of emphasis for regulators.” ~Thomas Curry, U.S. Comptroller of the Currency LENDINGCLIMATE:CautionRules
- 7. 28% 19% 13% 12% 7% 10% 9% 18% 20% 21% 7% 13% 0% 5% 10% 15% 20% 25% 30% CMBS Govt AgencyNational banks Regional/local banks Global Insurance CRE Property Lending: Shifting Sands 2014 2016
- 8. TopLenders… 1. Wells Fargo 2.JP Morgan 3. Citigroup 4. CBRE 5. Deutsche Bank 6. Morgan Stanley 7. Bank of America 8. Met Life 9. Walker Dunlop 10. Goldman Sachs …1H16 11. Berkadia 12. KeyCorp. 13. PGM RealEstate 14. Capital One 15. BerkeleyPoint 16. PNC 17. USBancorp 18. NY CommunityBank 19. Signature Bank 20. Bank of China
- 9. 2. The PhaseI ESAMarket …inthe context of CREmarket trends
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- 11. NEW YORK’sPhaseI ESATrendLine…
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- 13. NY CountyLeadersinPhaseI ESAActivity
- 14. “Opportunities existat theintersection betweentechnology and New York City’smore traditional industries of finance, media, advertising and retail. Tech continues to disrupt and transform theseindustries creating a more dynamic local economy. In terms of location, BrooklynandLongIslandCityarelower- pricedofficealternativestoManhattan.Theouter boroughsare primeareasfor techstartupsestablishinganofficefootprint, boasting emerging creativecommunities and directaccessto a young talent base.” JLL Technology Outlook, October 2016 In LongIsland’sFavor:
- 15. MORE TECHNOLOGY MORE PRESSURE THEERA OF “NOW” EfficiencyIs theNameof theGame 3.
- 16. “Pressures on efficiencyinthelending sector are all moving in the same direction. How can you conduct underwritingfaster and cheaper, and yet better than in the past? “Technology and using data in new ways willbe partof thesolution.” ~Michael Berman, former CEOof CW Capital and past Chairman of theMortgage Bankers Association
- 17. SURVEY How sensitive areyour clients to price in selecting a Phase I ESA provider? 1=NOTVERY, OTHER FACTORS MATTER MORE 5=PRICEIS THEMOST IMPORTANT FACTOR?
- 18. SURVEY How sensitive areyour clients to price in selecting a Phase I ESA provider? 1=NOT VERY, OTHER FACTORS MATTER MORE 5=PRICEIS THE MOST IMPORTANT FACTOR 4.25
- 19. SURVEY How sensitive areyour clients to TAT in selecting a Phase I ESA provider? 1=NOTVERY, OTHER FACTORS MATTER MORE 5=SPEEDIS THEMOST IMPORTANT FACTOR?
- 20. SURVEY How sensitive areyour clients to TAT in selecting a Phase I ESA provider? 1=NOT VERY, OTHER FACTORS MATTER MORE 5=SPEEDIS THE MOST IMPORTANT FACTOR 4.1
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- 23. NEAR-TERMFORECAST ▸Interest rates willcreepup ▸Hightransactionactivityin warehouses, data centers ▸Spate of retail closuresdrive asset movement ▸Modest CRE lending growth(3%), strong competition ▸Investorsare recalibratingtheir expectations
- 24. “Investors are growingcautious about the longevityof the current expansion cycle and, as a result, are taking steps to de-risk theirportfolios.”
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- 26. The Long Islandenvironmental due diligence market is: Rising quickly Rising slowly Plateauing On the decline On a scale of 1-5, whatis your outlookfor the Long Island due diligence marketjustone year from now? 1 = Very pessimistic 5 = Very confident 3.4
- 27. NREI’s October survey: •53 percent expect underwriting standards to tighten over the next 12 months • 40 percent expect no change • 7 percent believe underwriting will loosen 3.6 Risk aversion of your lender clients? 1= very tolerant of “red flags” 5 = very risk averse SURVEY
- 28. Dianne P. Crocker PrincipalAnalyst, EDR Insight dcrocker@edrnet.com ANY QUESTIONS?