2014 Forecast: Entering the 2nd Half Of Market Recovery
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Transcript of 2014 Forecast: Entering the 2nd Half Of Market Recovery
© 2014 Environmental Data Resources, Inc.
EBA Monthly RMC Call
By:
Dianne Crocker, Principal Analyst
EDR Insight
January 8, 2014
2014 Forecast:Entering the 2nd Half Of Market Recovery
Survival Mode
True start of
market rehabilitation
Year of refocusing
and repositioning
Market in Transition
2008 2010 201220112009 2013 2014
View of Market: 50,000 Feet
Y-on-Y Growth, 2013 (preliminary)
CRE Lending +14%
-SBA Lending + 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.
• By 3Q13, deal flow up 27% in 3Q YTD
• Nov up 15% YonY• Poised for healthy finish to
the year
Large Commercial Real Estate Deals Up
Headline Makers on Major Property Deals
• 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.
Recent Trend:
• 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.
Small Cap Transactions
• 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
Property Types in Favor
Geographic Spotlight
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
Banks’ Sell-off of Nonperforming Assets
• 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.
Commercial Property Lending Volume
LENDING: A Positive Take
“More banks were lending on income-producing 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
Lending Leaders: CRE
Page 14
• 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)
SBA Lending: A Bright Spot
• 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.
Bottom Line on Lending
© 2014 Environmental Data Resources, Inc.
APPROACHES TO ENVIRONMENTAL 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
Banks and Risk Management
• 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.
Attitudes Toward Risk
• 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
Upshot for 2014
Dianne P. CrockerPrincipal Analyst, EDR Insight
Research and Analytics:www.edrnet.com/EDRInsight
Twitter: @dpcrocker Email: [email protected]