Commercial Real Estate Market – Getting There…
…that’s what lenders, brokers, developers and other real estate pros put forth as the state of the market this week at the RealShare Chicago conference. RealShare is a regional series of events produced by Real Estate Forum and GlobeSt.com; this session included a “town hall” from industry leaders and four panel discussions on office, multi-family and opportunities in distressed assets and debt.
In the office real estate market, sounds like there may be construction in the offing in some markets – although it’s some time away in Chicago. Current inventory in many cities is old or has issues. Most panelists prefer urban over suburban office space and say smaller space over larger is more likely to get financed.
Getting capital is getting easier, but pre-leased buildings give one a good leg up and landlord performance is as important as any aspect of the deal. As far as where funds are coming from and how long it takes to close, Fannie Mae and Freddie Mac are in the game as a growing source of capital. These agencies will be restructured, but no one thinks it will happen soon, and no one seems sure of what they will look like. While still conservative, Fannie and Freddie are more willing to look at waivers and have eased somewhat on leverage, insurance coverage and rents. Life (insurance) companies are getting back into the game and there’s some CMBS lending as well as private financing. As more players enter the market – vying for assets – competition is beginning to build. Expect new deals and any new construction to take 9 – 12 months to close and refinancings and non-FHA loans to take 6 – 9 months, and a 65% LTV equals easier financing.
The multi-family rental market looks good. Rents are going up with favorable Chicago neighborhoods having risen from $1.85 to $2.04 sq. ft. in the last several months alone, and A properties at $2.50 or more. Demand for rentals throughout the nation will continue as Gen Yer’s come into the market – the largest group since Baby Boomers. 2011 and 2012 will continue to be good for rents, but look for more building by early 2013. Apartment owners are happy as clams and there is some relief as capital is becoming more available.
Conference presenters said they thought they’d make more money in distressed, but pointed out that this market cycle has not been the same as earlier down-turns and banks have managed assets differently. Distressed properties are being worked through the pipeline with most lenders having geared up work-out departments rather than working through foreclosures. While big banks have dealt with their portfolio problems, community banks have a way to go and many re-financings remain through 2014 – capital management is the name of the game for them.